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'RBI move to tame inflation without hurting growth'

Finance Secretary Ashok Chawla said the central bank's move is a balancing act by all means to tackle inflation heads on, without hurting the country's economic growth.

twitter-logo PTI   New Delhi     Last Updated: November 2, 2010  | 14:29 IST

The finance ministry on Tuesday said the Reserve Bank of India's decision to raise short-term lending (repo) and borrowing (reverse repo) rate is a balancing act to tame inflation, without hurting economic growth.

"This should (RBI's measure), as we go ahead further, anchor the inflationary expectations, which in any case is now moderating from the earlier elevated level," Finance Secretary Ashok Chawla told reporters here.

"This modest increase is not likely to impact in any harmful manner the growth that we have been seeing in the recent past," he added.

The wholesale price inflation rose to 8.62 per cent in September from 8.51 per cent in the previous month.

Chawala said the Reserve Bank has acted in a "very mature and pragmatic" manner to strike balance to curb rising inflation without affecting growth.

"So on the whole, in the macro economic policy parameter, it is an extremely sound and sensible decision," he added.

Announcing the second quarter monetary policy review, the RBI on Tuesday increased its key short-term lending and borrowing rates by 25 basis points, each, with immediate effect to rein in inflation, a move that could increase banks' commercial lending rates.

Accordingly, the short-term lending rate (repo rate) stands at 6.25 per cent and the borrowing rate (reverse repo) at 5.25 per cent.

RBI has, however, left the cash reserve ratio or bank rate - the amount of cash that banks have to park with the central bank to maintain prudential norms - unchanged at 6 per cent.

On a query whether RBI could raise rates further, Chawla said: "It's difficult to say at this stage, we will have to wait and watch."

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