'RBI's move is in right direction, inflation pressure exists' | business | Hindustan Times
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'RBI's move is in right direction, inflation pressure exists'

business Updated: Sep 16, 2010 16:52 IST

Finance Minister Pranab Mukherjee on Thursday said the Reserve Bank's move to raise its short term lending and borrowing rates is in the right direction as inflationary pressures are still there in the economy.

"I think it (the RBI move) is in the right direction because now the corridor has been narrowed down and still inflationary pressure is there in the system," Mukherjee told reporters in New Delhi.

RBI has raised short term lending (Repo) rate by 0.25 percentage points to 6 per cent and borrowing (Reverse Repo) rate by 0.50 percentage points to five per cent to tame inflation.

The difference between the repo and reverse repo is called corridor which has been reduced to one per cent now, after a wider difference which was there at the time of global financial crisis.

"I think the adjustment of repo and reverse repo will help to mop up additional liquidity, which is putting pressure on the system," he said.

Food inflation crossed 15 per cent for the week ended September 4, while overall inflation stood at 8.5 per cent in August.

RBI said inflation rates have reached a plateau, but are likely to remain at unacceptably high levels for some months.