Finmin supports RBI's stance on credit policy

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New Delhi, July 29 (UNI) Commending the RBI's stance on credit policy, the Finance Ministry today expressed hope that the steps taken by it will bring down the price level.

It noted that yesterday in its first quarter review, the Reserve Bank of India had stated that potential inflationary pressure from international food and energy prices are likely to remain so for some time.

Consistent with this conclusion, the Finance Ministry said the RBI this morning has increased the Repo rate by 50 basis points and, with effect from August 30, 2008, the CRR by 25 basis points.

"Government expects that the measures taken by RBI today, in continuation of the measures already taken over the last two months, will help in moderating and containing inflation," an official statement said.

The CRR impounds funds available with the banks. The Repo rate is the rate at which banks are allowed to access funds from the RBI for liquidity adjustment.

The Ministry said the increase in the CRR and the Repo rate was a signal to the banks that credit growth must be moderated, having regard to the need to moderate aggregate demand.

"If requests for loans are carefully appraised and credit is allocated prudently, it is possible for the banks to ensure that adequate credit is available to the productive sectors," the statement said.

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