The Planning Commission has said the Reserve Bank of India has taken the Perfect step in hiking key policy rates by 25 basis points as inflation is above the comfort level.
“I think it is on long expected lines. I don’t think markets would be surprised by given that inflation is not in the comfort level, I think it has done the right thing,” the Planning Commission Deputy Chairman - told reporters here today.
The central bank has raised its short-term lending and borrowing rates by 25 basis points each in a bid to contain inflation.
About the RBI increasing its March-end inflation forecast to 8 % from 7 %, Mr Ahluwalia said: “I don’t disagree with the (RBI’s revision of inflation) forecast of 8 % inflation by March end.”
“If the fiscal deficit projections presented in the Budget are maintained and gentle tightening of monetary policy, I assume with a normal production year; inflation during 2011-12 will definitely below 7 %,” he said.
Dismissing the contention that the RBI’s monetary tightening would hurt the economic growth, he said: “longer term economic growth rate is a function of many things.
“I don’t agree with the view that in order to keep the long-term interest rate modest, you should keep the short-term interest rate low,” he added.
Mr Ahluwalia suggested that it does not make sense to keep the RBI policy rates at low level and let inflation rise, for ensuring cheaper long-term credit from lenders.
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