RBI move will help rein in inflation without impacting growth

Finance Minister Pranab Mukherjee on Tuesday maintained that the Reserve Bank's policy decision to hike its short-term lending (repo) and borrowing (reverse repo) rates by 25 and 50 basis points would help rein in inflation without impacting the growth momentum.

Commenting on the apex bank's steps which are to come into force with immediate effect, Mr. Mukherjee said: “I expect this policy will lead to further easing of inflation, which already is going down, and it should also keep us fully on track in terms of growth.''

Describing RBI's monetary policy as “another calibrated step in the right direction”, Mr. Mukherjee said: “I am pleased that the RBI has not only raised policy rates but has narrowed down the spread between the repo and reverse repo rates by 25 basis points…A narrower spread shall make for a more efficient financial system.''

However, while raising the short-term rates aimed at containing inflation, the RBI chose to keep the Cash Reserve Ratio (mandatory deposits that banks have to park with it) unchanged at 6 per cent so as to ensure sufficient liquidity in the monetary system.

Hailing the move, Mr. Mukherjee said: “I also want to endorse the RBI's decision not to raise the CRR. With the successful 3G auctions, there is going to be a natural tightening of credit. Under these circumstances, not tightening credit by direct quantitative measures like the CRR shows sophisticated thinking.”

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