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Economists back RBI measures

Leading economists have welcomed the measures initiated by the Reserve Bank of India today to rein in soaring inflation, saying that price rise has become a more serious and larger issue.

business Updated: May 03, 2011 16:55 IST

Leading economists have welcomed the measures initiated by the Reserve Bank of India on Tuesday to rein in soaring inflation, saying that price rise has become a more serious and larger issue.

Describing the annual monetary policy announced by RBI Governor D Subbarao as a progressive one, Ernst & Young India's Ashvin Parekh said, "We have almost reached a point where inflation has become unmanageable and RBI has clearly indicated that bringing down inflation to a comfortable level is its top priority."

The RBI has pegged the GDP growth rate for the current fiscal at 8%, as against the government's projection of 9%, whereas the economy grew by 8.6% in 2010-11. This is clear from the governor's call to the government to bring down subsidies on oil and fertilisers, failing which the apex bank may propose another rate hike in its July policy announcement, he said.

The RBI on Tuesday raised the key repo and reverse repo policy rates by 50 basis points each to 7.25% and 6.25%, respectively.

Repo is the rate at which the RBI provides credit to banks, while reverse repo is the rate at which banks park money with the apex bank.

The RBI also asked banks to hike the savings bank rate by 50 basis points to 4% so as to provide relief to depositors from inflation. This is the ninth time since March, 2010, that the RBI has hiked the key rates as part of efforts to cool down high inflation.

Fitch Ratings India's D K Pant opined that as inflation has been adamantly high all these months, the RBI has taken a right step to yank it down by compromising on growth, which is already visible from recent months' factory output data.