RBI may hike rates again if inflation remains high: Pranab

July 27th, 2011 - 5:45 pm ICT by IANS  

Pranab Mukherjee New Delhi, July 27 (IANS) Finance Minister Pranab Mukherjee said Wednesday the Reserve Bank of India might hike policy rates again as inflation was unlikely to come down to a comfortable level this year.

“I don’t think this is the end of the tunnel,” Mukherjee told reporters when asked whether the Reserve Bank of India (RBI) would raise policy rates again.

The finance minister termed the RBI action necessary, even though he admittede that such hikes were hurting growth.

The RBI Tuesday raised key policy rates by 50 basis points in the 11th such exercise since January 2010 to tame inflation. The repurchase rate, the interest the country’s 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.

Mukherjee said 50 basis points rate hike was intended to convey a “strong signal” about the regulator’s intention to curb inflation.

The finance minister, however, said inflation remained a major concern and it was unlikely to come down to a comfortable level this year. “We have to keep in mind that year-end inflation may not be less than 6 to 7 percent.”

The headline inflation based on wholesale prices was 9.44 percent in June. It was almost in the double-digit for most part of the last fiscal and stood in the range of 9 to 10 percent in the first three months of 2011-12 against the regulator’s comfort level of 4 to 5 percent.

Mukherjee said inflation was driven by a number of external factors, especially rise in commodity prices in global markets, which were not in the control of the government.

“I don’t know how to overcome the volatility in the global commodity prices,” Mukherjee said while talking to a select group of media persons at his North Block office here.

He said the rate hikes have affected growth but it was likely to remain strong and in line with the growth 2010-11.

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