Rate hike will bring down inflation to 6 percent: Pranab

July 26th, 2011 - 4:52 pm ICT by IANS  

Pranab Mukherjee New Delhi, July 26 (IANS) The Reserve Bank of India’s (RBI) aggressive monetary tightening measures would help bring down inflation to a comfortable level of six to seven percent by the end of this year from the current near double-digit, Finance Minister Pranab Mukherjee said Tuesday.

The RBI Tuesday hiked key policy rates by 50 basis points in the 11th such exercise since January 2010 to tame inflation. The repurchase rate, the interest the central bank levies on short-term borrowing by commercial banks, has been hiked to 8 percent from 7.5 percent and reverse repurchase rate, or interest paid on short-term lending, raised to 7 percent from 6.5 percent.

Reacting to the RBI’s move, Mukherjee said through the rate hike the central bank had sought to give a “strong signal to further moderate inflation and check inflationary expectations”.

“With this policy adjustment, we will be able to get back to a more comfortable inflation situation that takes us to the year end inflation level of six to seven percent,” finance minister said in a statement.

On impacts of rate hike on the economic growth, Mukherjee said despite some moderation in the recent months he was hopeful of maintaining the growth momentum.

Notwithstanding some slowdown of GDP growth in the first quarter of 2011-12, as reflected in the some indicators including the IIP and moderation in the growth of interest-sensitive sectors, the overall GDP growth for 2011-12 so far is in line with the momentum attained in 2010-11, he said.

In March 2010, when the RBI started to raise policy rates in the current rate hike cycle, the headline inflation based on wholesale price index was 10.4 percent. Even after 10 rate hikes, the headline inflation stood at 9.4 percent in June 2011.

The RBI Tuesday raised its projection on year-end inflation seven percent from its earlier estimate of six percent.

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