Finance Minister Pranab Mukherjee on Tuesday said the Reserve Bank's decision to hike short-term borrowing and lending rates will help contain inflation and was in line with the government's policy.
Welcoming the RBI decision to increase the repo and reverse repo rates (short-term borrowing and lending rates) by 25 basis points each, Mukherjee said it was aimed at giving "a strong signal to tackle inflationary pressures".
"RBI has taken a decision very correctly to increase the repo rate and reverse repo rate," he added.
The Reserve Bank of India (RBI) also revised inflation target to 7% by March-end, from 5.5% projected previously.
The central bank retained the economic growth forecast at 8.5% for the current fiscal with potential for an upward bias.
The RBI measures also include extending additional liquidity support facility till April 8, 2011.
"Therefore the RBI policy announcement is in conformity with the thinking and policy of the government," the finance minister said.