Date:26/06/2008 URL: http://www.thehindu.com/2008/06/26/stories/2008062657800100.htm

New Delhi

RBI steps will check inflation without hurting growth: Centre

Special Correspondent

“The objective of the RBI is to moderate and manage aggregate demand”

‘The steps are expected to have a salutary effect’
‘We have very satisfactory stocks of wheat and rice’

NEW DELHI: The Centre on Wednesday sought to assuage the fears of foreign and domestic investors and the people at large on the state of the economy, while expressing confidence that the Reserve Bank’s move to hike the short term lending (repo) rate for banks and the cash reserve ratio (CRR) by 50 basis points each would help tame inflation without hurting overall growth.

Twin measures

In a statement here the day after the announcement of the twin measures by the apex bank to quell inflationary expectations, the Finance Ministry said: “The objective of the RBI is to moderate and manage aggregate demand. The intention is to achieve the objective while ensuring that the prospects for overall economic growth remain positive”.

It said these steps, aimed at sucking out liquidity, were necessary in the wake of the inflation rate exceeding 11 per cent owing to the relentless increase in crude oil prices. Crude oil prices on the NYMEX had gone up from $ 134.63 a barrel on June 20, the trading day preceding the Jeddah meeting of major oil producing and consuming countries, to $ 136.80 a barrel, it said.

Bank action hailed

Hailing the central bank’s action on the demand side to moderate inflation, the Ministry said: “These steps are expected to have a salutary effect…The policy stance adopted by the RBI should boost the confidence of investors, both domestic and foreign, and augur well for economic growth.”

Positive side

Referring to the comfortable foodgrain stock position in the country, the statement said: “On the positive side, as the Minister of Agriculture has noted, we have very satisfactory stocks of wheat and rice; adequate supplies will be provided to the PDS [public distribution system]; and stocks will be sold in the open market, when necessary, to restrain prices…there is improvement in domestic agricultural performance; the external sector is strong and resilient with modest current account deficits; and the level of foreign exchange reserves is comfortable.”