RBI rate hike not unreasonable, says Montek

The Planning Commission today said that the decision of the Reserve Bank to raise interest rates by 25 basis points is not unreasonable and a signal to bring inflation under control.

"RBI is signaling their concern about bringing inflation under control. It (inflation) is high. The rate hike is within a range that is not unreasonable", Planning Commission Deputy Chairman Montek Singh Ahluwalia told reporters here.

Following the increase announced by the RBI, the short-term lending (repo) rate stands at 8.25 per cent and the short-term borrowing rate (reverse repo) at 7.25 per cent.

Ahluwalia expressed optimism that inflation will come down in view of softening of prices across the globe due to prevailing sluggishness in the economy and good harvest expected this year.

Headline inflation measured by movement in wholesale prices, was 9.78 per cent for August.

"I think on the supply side also good harvest will have positive effect. My guess is that the global transmission of inflation will also be much less. Taking all things together, I think, the inflation will moderate", he added.

About the impact of decline in value of rupee against dollar on economy, Ahluwalia said, "(Foreign) reserves are very high so I don't see any panic effect (due to low rupee)." The rupee on Wednesday dipped to a two-year low breaching Rs 48 to a dollar mark. It, however, gained 12 paise and was trading at Rs 47.43 to a dollar.

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