Hike in rates to help moderate prices: Pranab

Finance Minister Pranab Mukherjee said on Thursday Reserve Bank of India's decision to raise key policy rates would help in moderating prices and opined that inflation might measure 7.5 per cent by March-end as against the government's earlier projection of 7 per cent.

"We can say (inflation for March-end) may be 7.5 per cent," Mukherjee told reporters in his reaction to RBI raising its own fiscal-end inflation forecast to 8 per cent from 7 per cent previously.

The Reserve Bank in its bid to rein in inflation also raised short-term lending and borrowing rates by 25 basis points in its monetary policy review meeting on Thursday.

This is for the eighth time that the apex bank has raised the key rates since March 2010. On the RBI's rate hike, Mukherjee said, "It is good. It will have its impact on the inflationary pressure."

He further said that repo and reverse repo rates have been increased by 25 points each, which is in tandem with the fiscal policy and thinking of the government.

Mukherjee added that the difference between repo and reverse repo rates have been maintained at one per cent, adding that, "I do hope it will have a salutory impact on inflationary pressure."

The short term lending rate (repo) has been increased from 6.50 per cent to 6.75 per cent, while the short-term borrowing rate (reverse repo) has been raised to 5.75 per cent from 5.50 per cent.

The overall inflation increased marginally in February to 8.31 per cent from 8.23 per cent a month ago.

Commerce and Industry Minister Anand Sharma said, "I hope that credit will continue to made available freely, liberally and on good terms to the industry, because investments must go in for capacity building and for additional capacity creation, which the industry is committed to do."

The minister was speaking to reporters on the sidelines of a Confederation of Indian Industries' meet.

Image: Pranab Mukherjee