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RBI rate pause will spur growth: Pranab

The Reserve Bank of India left interest rates unchanged on Friday and also signaled that further hikes may not be warranted. Finance Minister Pranab Mukherjee said the central bank's move will help in regaining growth momentum in the remaining period of fiscal 2011-12.

BT Online Bureau   New Delhi     Last Updated: December 16, 2011  | 16:41 IST

The Reserve Bank of India's decision to keep key rates unchanged will help improve business sentiments and regain economic growth momentum, Finance Minister Pranab Mukherjee said on Friday.

"I am hopeful today's announcement will help in regaining our growth momentum with improved macro economic parameters in the remaining period of fiscal 2011-12," Mukherjee told reporters here while reacting on the RBI's mid-quarter review of monetary policy in which it kept key policy rates unchanged.

Welcoming the central bank's move, Mukherjee said the RBI has chosen to address the concerns on slowing growth.

"The RBI has changed its policy stand from the monetary tightening. There is no change in any policy variables and that includes the repo rate... Governor has chosen to reflect his concern on growth which has altered in the past few months," the finance minister said.

In its mid-quarter review of the monetary policy, the central bank kept key rates unchanged Friday after 13 successive hikes since early 2010.

The review came against the backdrop of India's annual rate of inflation falling to 9.1 per cent in November, while the food inflation fell to 4.35 per cent for the week ended Dec 3.

But factory output declined 5.1 per cent in October, while the gross domestic product saw a mere 6.9 per cent growth during the second quarter of this fiscal, which was the lowest in over two years.

The Indian economy grew by 8.5 per cent in 2010-11 and the government had set a target of around 9 per cent growth for the current financial year.

The finance minister said the recent moderation in inflation and growth had necessitated change in monetary tightening stance.

"There has been an appreciable decline in food inflation in the month of November but inflation in manufactured products is still high," Mukherjee said.

"The need to improve the business sentiments and recover the growth momentum in the remaining months of the current fiscal necessitated a review of the current monetary policy stance," he said.

The Reserve Bank said it maintained its projection for annual inflation at 7 per cent for end-March, while reserving its forecast on growth for the third quarter review, which is expected in January.

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