The Hindu : Business : `Repo rate hike not to push up lending rates'

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Wednesday, Oct 26, 2005

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Business

`Repo rate hike not to push up lending rates'

Special Correspondent

Chidambaram welcomes upward revision of GDP growth forecast

NEW DELHI: Finance Minister P. Chidambaram on Tuesday said the scaling up of GDP (gross domestic product) growth forecast by the Reserve Bank of India (RBI) was "encouraging'' and maintained that the hike in repo and reverse repo rates was aimed at ensuring price stability with no adverse impact on the lending rates.

"It is encouraging to note that the RBI has upgraded the forecast for GDP growth in 2005-06 from seven per cent to 7-7.5 per cent. Agriculture is likely to perform well, and the business confidence index is now at its highest level in ten years,'' Mr Chidambaram told newspersons here.

Justifying the changes announced by the RBI, Mr. Chidambaram said it was a "measured step'' aimed at moderate monetary tightening. "With adequate liquidity available, there will not be any adverse impact on the cost of credit for investment for productive activities,'' Mr. Chidambaram said. .

Referring to the spiralling global crude oil prices, he said: "To contain the upside risk to price stability, strong vigil is being maintained by the Government and the RBI.''

Enthused particularly by the revised projections on GDP growth, the Finance Minister pointed out that there were indications of an investment boom supported by a buoyant growth in both credit and equity finance.

"It is critical to maintain this investment momentum to accelerate growth further,'' he said.

Alongside, order books, capacity utilisation, employment, exports and profit margins of corporates were also expected to improve in the current quarter compared to the previous one this fiscal, Mr. Chidambaram said.

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