The Reserve Bank's annual monetary policy will moderate inflation without hurting growth, while providing relief to small housing loan borrowers, Finance Minister P Chidambaram said on Tuesday.

"We must moderate inflation without affecting growth. Both are important - moderate inflation and high growth. And I think what RBI has done today is broadly in line with government's thinking. These steps would moderate inflation without affecting growth," he said.

RBI projected India's economy to grow by a slower 8.5 per cent in 2007-08 against the expected 9.2 per cent for 2006-07. It also projected inflation to remain close to five per cent during 2007-08 and 4-4.5 per cent over the medium term.

Chidambaram said, "They (inflation) are aggressive targets. To keep inflation below 4.5 per cent is indeed an aggressive target. But that appears to be the tolerance level for inflation. So, RBI is aiming at inflation below 4.5 per cent. Certainly, government would welcome and support that stance."

However, on RBI's projection of slower GDP growth, he said it was a cautious and conservative position. If manufacturing rises by double digit numbers like services, 8.5 per cent GDP growth would be floor and not the ceiling, he said.

On RBI's measure to reduce risk weightage on housing loans up to Rs 20 lakh, he said the step would provide relief to small borrowers, who constitute 80 per cent of the total loan seekers.

"It's a good, positive response from RBI. Bank chiefs had made an appeal to RBI in this respect. And I think as a result of that most small borrowers, that is who take a home loan between 8-10 lakh, should get some relief."

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