Chidamabaram justifies lending rate hike

June 18th, 2008 - 10:21 pm ICT by IANS  

A file-photo of P. Chidambaram

New Delhi, June 18 (IANS) Finance Minister P. Chidambaram Wednesday justified the decision of the Reserve Bank of India (RBI) to increase the lending rate or repo rate from 7.75 percent to 8 percent. “Since inflation is high, the RBI must take measures to tighten the money supply. The increase in the repo rate was just one such measure,” Chidambaram told reporters here after attending a meeting of senior officials of the state-run Central Bank of India.

On June 11, the RBI, India’s central bank, raised the repo rate, that is the rate at which the apex bank lends money to the banks.

The RBI had said the move was aimed at containing inflation, which soared to a seven-year high at 8.75 percent for the week ended May 31 against 8.24 percent for the week before.

Inflation has forced the banks to increase interest rates. At present, these banks have fixed the prime lending rate at around 13 percent.

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