Finance Minister Pranab Mukherjee on Tuesday endorsed the central bank's decision to hike key interest rates aimed at containing inflation without hurting growth.
"The well-balanced measures, which involve raising the repo rate, the reverse repo rate and the cash reserve ratio by 25 basis points each, reflect a mature and balanced view of the needs of our economy and I fully endorse the measures," said Mukherjee in a statement.
"These policies should have a gentle impact in tightening money in the economy and should dampen further inflationary pressures," he said, adding that inflation was starting to decline and would be closer to 4 percent with an upward bias at the end of the current fiscal.
Unveiling its monetary policy statement, the Reserve Bank of India predicted that annual inflation would be around 5.5 percent.
"The small tightening of credit and other policy changes are in the right direction. It has to be recalled that these policy rates were lowered in the last two years in order to combat the fall-out of the global recession on the Indian economy," said Mukherjee.
Mukherjee also sought to allay fears that the hike in interest rates would hamper growth of the economy, which the RBI pegs at 8 percent with an upward bias for 2010-11.
"Some observers may worry that tightening of credit can dampen growth, especially in the durable goods sector. But our analysis of industrial growth and credit off-take suggests that there is no reason for such apprehension. In fact, these policies will aid sustainable growth.
"Let me add that the overall economic scenario in India now looks extremely robust and better than it has any time in the last two years. I congratulate the Governor of the RBI for his able stewardship of monetary policy," said Mukherjee.