Finance Ministry expresses hope in RBI's steps to rein in inflation

{image-reserve bank of india_25062008.jpg news.oneindia.in}New Delhi, June 25 : The Finance Ministry today expressed hope that the Reserve Bank of India's decision of increasing the repo rate by 50 basis points and the CRR by 50 basis points in two stages without compromising economic growth, would help to rein in the surging inflation.

It said in a statement that the steps are expected to regulate demands and are necessary in the face of rising inflation due to relentless increase in crude oil prices. On June 20, the trading day preceding the Jeddah meeting, the crude oil price on the New York Mercantile Exchange (NYMEX) was US134.63 dollars per barrel. This morning, it is US136.80 dollars per barrel, the statement said. "On the positive side, as the Minister of Agriculture Sharad Pawar has noted, we have very satisfactory stocks of wheat and rice, adequate supplies will be provided to the Public Distribution System (PDS) and stocks will be sold in the open market, when necessary, to restrain prices."

As the RBI's statement points out, demand is still high (non-food credit growth was 26.2 per cent as on June 6, 2008). There is a reasonable supply-demand balance and an improvement in domestic agricultural performance.

The external sector is strong and resilient with modest current account deficits and the level of foreign exchange reserves is comfortable.

The policy stance adopted by the RBI should boost the confidence of investors both domestic and foreign, and augur well for economic growth.

ANI