RBI rate hike may impact growth in short-run: Mukherjee

November 2nd, 2010 - 9:26 pm ICT by IANS  

Pranab Mukherjee New Delhi, Nov 2 (IANS) Finance Minister Pranab Mukherjee Tuesday said the tightening of monetary policy by the Reserve Bank of India (RBI) is likely to affect near-term growth but will help the economy in the long run.

“This tightening may have a small negative impact on the growth rate but I expect such an effect to be only a short run one. In the medium to long term, the changes announced by the RBI today (Tuesday) should actually help Indian economy to do better in terms of growth,” Mukherjee said in a statement after the central bank raised short-term borrowing and lending rates by 25 basis points each.

Mukherjee said the RBI had little option as it was facing a dilemma of curbing inflation and maintaining the growth momentum.

“The signals from the economy have been mixed. Industrial growth showed a slight slowing down in August, which is the last month for which we have detailed data. Inflation, while less than what it was some months ago, is still not in a zone where we can sit back.”

In its second-quarter review of monetary policy, the RBI hiked repurchase rate from 6 percent to 6.25 and reverse repurchase rate from 5 percent to 5.25 percent. This is the sixth time the central bank has tweaked interest rates to tame inflation.

“I respect this decision made in a difficult time. This will create some monetary tightening in the country, without narrowing the LAF corridor,” said Mukherjee.

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