RBI rate hike to bring down inflation: FM

Finance Minister Pranab Mukherjee on Friday said the 25 basis points rate hike by the Reserve Bank will help in moderating inflation to a comfortable level without hurting growth.

"I am hopeful that measures taken (by RBI) would get us back to a more comfortable inflation situation earlier rather than later... while (leaving) scope for growth to pick up in the second half of the year," Mukherjee said.

The Reserve Bank in its mid-quarterly review hiked interest rates by 25 basis points making credit costly. This is the 12th time since March 2010 that the RBI hiked rates in its efforts to tame inflation.

"Today's step is consistent with RBI's monetary stance for the first half of 2011-12 and overall concern on growth sustainability in the medium term," Mukherjee said.

The RBI had earlier said that inflation would continue to be the guiding factor for deciding the monetary policy action in future. It had projected March-end inflation at 7 per cent.

According to the central bank, the inflation would cool only in the later part of the financial year.
The overall inflation was 9.78 per cent in August, up from 9.22 per cent in July, much above the RBI's comfort level of 5-6 per cent.

In the backdrop of mixed data on the state of economy, Mukherjee said, headline inflation, which is above 9 per cent for the last 12 months, continues to be a matter of concern.

"There are signs of growth (getting) affected by monetary tightening in the recent days," the Minister added. Industrial production fell to a 21-month low of 3.3 per cent in July.

The country's GDP growth also slipped to 18-month low of 7.7 per cent in April-June period.