RBI surprises with 50 bps rate hike

Welcoming the Reserve Bank's decision to hike key rates by a hefty 50 basis points, Finance Minister Pranab Mukherjee today said it will help bring down inflation to a comfortable level of 6-7% by year-end.

"The Reserve Bank of India has sought to give a strong signal to further moderate inflation and check inflationary expectations," Mukherjee said.

Inflation has remained stubbornly close to double-digit levels during the first quarter of the current fiscal. Mukherjee said the RBI rate hike was necessary to bring down inflation to an acceptable level at the earliest.

Overall wholesale price-based inflation stood at 9.44% in June. To tame the inflation monster, the RBI today hiked key policy rates by 50 basis points. "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 6 to 7%," Mukherjee added.

The RBI has hiked its policy rates 11 times since March, 2010, to curb inflation. However, the problem persists. Mukherjee said although food inflation has moderated in recent months, pressure in manufactured items has hardened.

While coming out with its first quarterly policy review for the 2011-12 financial year, the RBI admitted that there has been a moderation in growth, but maintained its previous estimate of 8% GDP growth for the current fiscal.

Mukherjee said, "The overall GDP growth for 2011-12 so far is in line with the momentum attained in 2010-11." There have been concerns that the country's economic growth could see some moderation on the back of a deceleration in factory output growth in April-May.

Industrial output growth in April-May this year averaged 5.7%, compared to 10.8% in the same period last year.

Source: http://www.moneycontrol.com/news/economy/rbi-rate-hike-to-ease-inflationary-pressure-says-fm_569175.html