This Article is From Jan 28, 2014

RBI rate hike a commitment to check inflation: C Rangarajan

RBI rate hike a commitment to check inflation: C Rangarajan
New Delhi:

The Reserve Bank of India's hiking the key lending rate by 0.25 per cent on Tuesday is a reflection of its "strong commitment" to check inflation, Prime Minister's Economic Advisory Council (PMEAC) Chairman C Rangarajan has said.

"This is a reflection of the strong commitment of Reserve Bank to the price stability as the chief objective of the monetary policy. I think the decision also reflects certain change in terms of the indicators that they are monitoring," Mr Rangarajan said after the RBI's third quarter monetary policy review.

"...it is also indicated that perhaps if inflation moves along the direction expected, perhaps this may be the last in the series of increasing in the policy rates," he added.

He said the RBI's decision to raise to 8 per cent the repo rate - at which it lends to banks - also reflects certain change in terms of the indicators monitored by them.

"While the Wholesale Price Inflation (WPI) remains near the comfort zone, the Consumer Price Inflation (CPI) is not. Therefore the decision to increase the interest rate is once again reflection of the shift in terms of the focus from wholesale price inflation to retail inflation," he added.

Consumer price index-based, or retail, inflation in December had moderated to a three month low of 9.87 per cent, while headline, or that based on wholesale price index (WPI), inflation was at a 5-month low of 6.16 per cent.

The monetary policy decision by the RBI will see the "inflation responding for a change", said HSBC Bank's country head for India operations, Naina Lal Kidwai.

"The concern, of course, remains on food prices. We have not yet had enough action on some moves to ensure that food inflation comes down. But, of course we need to continue to see investment. The biggest worry is growth," she said.

Expressing no surprise over the apex bank's decision to hike the repo rate, Samiran Chakraborty, head of research at Standard Chartered Bank, hoped there will be no further rate hike.

"Rate hike is not a complete surprise. The Urjit Patel Committee clearly focuses on headline inflation. We could have seen the rate hike in December as well... At this moment, I am not expecting any further rate hike," he said.

Replying to a question on the impact of rate hike on growth, Mr Rangarajan said that it will be higher than what the RBI has projected.

"I think the growth rate will be somewhat higher than what they are projecting. I expect the growth rate for the current year itself to be around 5 per cent. And perhaps the pickup in the growth in the next year will be somewhat higher than what they have indicated. I think that the growth rate next year could be in the range of 6-6.5 per cent," Mr Rangarajan said.

In its review, the RBI has projected the GDP growth to be less than 5 per cent in current fiscal year. For the next fiscal year, which begins from April 1, 2014, it has projected growth to improve to 5.5 per cent.