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Hike in interest rate 'pre-emptive': FM

Finance Minister P Chidambaram says if the external situation improves the rates can be reversed.

india Updated: Jan 27, 2006 16:07 IST

Terming as "pre-emptive action," the hike in repo rates by Reserve Bank, Finance Minister P Chidambaram on Tuesday said if the external situation improved they could be reversed.

"The 25 basis points hike in repo rates, I believe is a pre-emptive action by RBI which wants to be ahead of curve (in keeping inflation under check)... As soon as external situation clears and stabilises, I believe it could be reversed," he told reporters reacting to the central bank's third quarter review of monetary policy.

What the Government and RBI was keen on was to keep the inflation below five per cent and given the strong credit and consumer demand, "we do not want to stoke inflationary expectations."

Chidambaram also expected the interest rates to be stable in the medium and long term.

The Reserve Bank has not changed the benchmark bank rates or CRR, Chidambaram said, adding that "this is a clear indication that in the medium term and long term RBI wished to keep the interest rates stable."

"We have to keep a watch on the US situation on January 31 and March. This is pre-emptive action. I understand they could be reversed if the situation is right," he said.

The central bank has provided adequate liquidity to all borrowers, Chidambaram said, adding that RBI has number of other instruments to control liquidity.

The finance minister also said he did not see any change in the government borrowing programme as of now given the resource position.

First Published: Jan 24, 2006 17:35 IST