FinMin expects RBI measures to tame inflation

The Finance Ministry says that RBI's decision to hike short term lending rate and mandatory deposit requirements are a signal to banks to moderate credit growth.

The Finance Ministry on Tueday said that RBI's decision to hike short term lending rate and mandatory deposit requirements were a signal to banks to moderate credit growth, and expected these measures to cool down inflation, ruling at 11.89 per cent now.

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"Government expects that the measures taken by the RBI today, in continuation of the measures already taken over the last two months, will help in moderating and containing inflation," the Finance Ministry said in a statement in New Delhi.

RBI on Tuesday raised short-term lending rate, Repo, by 0.50 per cent from 8.5 per cent to nine per cent and mandatory deposit requirements for banks, CRR, by 0.25 per cent to nine per cent with effect from the fortnight beginning August 30, 2008.

"Increase in the CRR and Repo rate is a signal to the banks that credit growth must be moderated, having regard to the needs to moderate aggregate demand," the statement said.

The Finance Ministry further said if requests for loans are carefully appraised and credit is allocated prudently, it is possible for the banks to ensure that adequate credit is available to the productive sectors.