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Updated: March 17, 2011 22:27 IST

RBI step will moderate prices: Pranab

Special Correspondent
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Union Finance Minister Pranab Mukherjee addressing the media at Parliament House on Thursday. Photo: R. V. Moorthy
The Hindu
Union Finance Minister Pranab Mukherjee addressing the media at Parliament House on Thursday. Photo: R. V. Moorthy

Even as apex chambers expressed concern over the hike in key policy rates impacting industrial growth, Finance Minister Pranab Mukherjee on Thursday maintained that the Reserve Bank's decision would help in containing the price spiral although inflation could be marginally higher that what was projected earlier for the fiscal year-end.

Commenting on the apex bank's monetary step signalling higher interest rates to check inflation, now projected higher at 8 per cent, Mr. Mukherjee said: “We can say [inflation for March-end] may be 7.5 per cent…It [hike in repo and reverse repo rates] is good. It will have its impact on the inflationary pressure.”

Noting that the hike in RBI's key policy rates by 25 basis points each was in tandem with the government's thinking and fiscal policy, Mr. Mukherjee said the one percentage point corridor between the lending and borrowing rates had been maintained. “I do hope it will have a salutary impact on inflationary pressure,” he said.

Planning Commission Deputy Chairman Montek Singh Ahluwalia also viewed that the RBI had taken the ‘right' step. “I think it is on long expected lines. I don't think markets would be surprised by [the RBI key rate hike]. Given that inflation is not in the comfort level, I think it has done the right thing,” he said.

Mr. Ahluwalia was also in agreement with the RBI on upping the inflation estimate for the fiscal year. “I don't disagree with the forecast of 8 per cent inflation by March end…We are hoping that it would go down to 7 per cent level by March-end. We have to admit that inflation rate in February is higher than what we wanted it to be,” he said.

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