RBI to continue tight money policy; defends rate hike
24 Mar 2010
The Reserve Bank of India (RBI) will continue to tighten its monetary policy measures in order to curb inflationary pressures that may hinder the country's steady economic growth, Governor D Subbarao said today.
Defending the central bank's unscheduled move last week-end to raise its lending and borrowing rates, the governor said a sustained and strong economic growth would not be possible amid rising inflation.
Overall inflation in the country has been building up in spite of the decline in food price inflation, which was said to be the main cause of rising inflation in the country, Subbarao said in a speech at a convocation.
"The contribution of food to inflation was at 100 per cent in November. By February, contribution of food to inflation has come down to 52 per cent. So, these numbers say even if food inflation is high, non-food inflation is building up."
RBI on Friday raised its key lending rate for banks - the repurchase (repo) rate - to 5 per cent from 4.75 per cent. RBI also raised its borrowing or repurchase (reverse repo) rate to 3.50 per cent from 3.25 per cent.
RBI had estimated the wholesale price inflation in the country to be around 8.5 per cent by end-March, the governor said, adding that the February level of 9.89 per cent - the latest available estimate - is far above RBI's projection.
