Finance Minister Pranab Mukherjee on Tuesday maintained that the Reserve Bank's policy initiatives of hiking its ‘crucial' rates were in conformity with the government's line of thinking and would help in taming inflation. Commenting voluntarily on the apex bank's third quarter monetary policy review at the fag end of his press conference on black money, Mr. Mukherjee said: “the RBI has taken a decision correctly to increase the repo rate and reverse repo rate…The policy announced by the RBI is in conformity with thinking and policies pursued by the government and I welcome the announcement by the RBI Governor.”
As part of its strategy to contain inflationary pressures, the RBI hiked the repo and reverse repo (short-term lending and borrowing rates) by 25 basis points each to 6.5 per cent and 5.5 per cent, respectively, while raising its projection on overall inflation to 7 per cent for the fiscal year-end from its earlier estimate of 5.5 per cent.
“These steps [the] RBI had to take to give a strong signal to tackle the inflationary pressure which is in the system,” Mr. Mukherjee said while pointing out that besides removing supply bottlenecks, there was also a need to suck out excess liquidity” even as “CRR remains intact to ease the liquidity situation and make it more comfortable,” he said.
Articulating similar views, Finance Minister's Chief Economic Advisor Kaushik Basu dubbed the RBI measures as ‘just right' to tackle the price spiral. “...the battle against inflation, which we were hoping would end by March or April, would probably continue for some more months,” Dr. Basu told the media here.
