September 16th, 2011
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C Rangarajan defends RBI monetary decision

C rangarajan Prime Minister’s Economic Advisory Council chairmanNew Delhi: Prime Minister’s Economic Advisory Council chairman  C. Rangarajan defended the Defending the Reserve Bank’s decision to hike key rates by 25 basis points. “The RBI has taken the correct decision. In the context of rising inflation, RBI had no other option but to raise interest rates,” PMEAC Chairman C. Rangarajan said.

Mr. Rangarajan, however, said that pressure on the price front is likely to remain in thus for sometime before moderating to around 7 per cent by March, 2012.“Inflation will continue to remain high in the next three months. However, in the last quarter of the current fiscal (January-March, 2012), I see definite signs of decline. It will come down to 7 per cent by March, 2012,” he said.

Economists said the RBI has decided to stick to its hawkish monetary policy, as inflationary pressure persists across all segments.“The increase in the repo rate by 25 basis points is largely in line with the market expectations. The RBI has chosen inflation control as its main focus… Inflation remains generalised across food, non-food manufacturing and imported inflation,” Kotak Mahindra Old Mutual Life Insurance Chief Investment Officer Sudhakar Shanbhag said.

The RBI said there is still an element of suppressed inflation in the Indian economy, as there is a substantial gap between global oil prices and the highly subsidised domestic rates. According to the central bank, a premature change in the policy stance could harden inflationary expectations, thereby diluting the impact of past policy actions. “If you see the tone of the RBI, this rate hike was expected. Going ahead, another rate hike is also likely on the back of current inflation numbers,” Crisil Chief Economist D K Joshi said.


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