RBI rate hike to affect growth: FM

Finance Minister Pranab Mukherjee said on Tuesday the Reserve Bank's latest round of rate hike, which is aimed at curbing price rise, will also have some impact on economic growth.

"I do hope that decision of RBI to enhance the repo rate and reverse-repo rate by 25 basis points would have its impact on inflation. Of course, it would have some impact on growth also," Mukherjee told reporters here.

In its policy review meeting on Tuesday, the Reserve Bank of India hiked interest rates by 25 basis points.

The short-term lending (repo) and borrowing (reverse-repo) rates now stand at 8.5 per cent and 7.5 per cent, respectively.

RBI has also lowered its gross domestic product forecast for the fiscal to 7.6 per cent, from its earlier projection of 8 per cent.

Later in a statement, Mukherjee said RBI's policy 'would help in getting us back to a more comfortable inflation situation soon while leaving scope for growth to pick up in the second half of current fiscal year'.

He said the decision has been taken by RBI to affirm its commitment to tackle inflation as the headline inflation is still high.

The headline inflation has remained above the 9 per cent mark since December 2010. In September it was 9.72 per cent.

With Tuesday's hike, RBI has raised its key policy rate 13 timed since March 2010 to control inflation.

This in turn is getting reflected in industrial production figures as funds are getting costlier.

Industrial production grew by 5.6 per cent in the April-August period, as against 8.7 per cent in the corresponding period a year ago.

Mukherjee said the rate hike would have its implications on credit costs and investment growth.

"We are looking at all options for strengthening investment sentiments in the coming months," he added.

Image: Pranab Mukherjee