Rate hike was needed after ECB move: Chidambaram

RBI raised rates by a quarter-point to 5.75 per cent last week, the highest level in four years.

Finance Minister Palaniappan Chidambaram backed on Monday the Reserve Bank of India’s (RBI) move to raise interest rates, saying it was necessary to stay ahead of the curve especially after the European Central Bank tightened monetary policy.

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Chidambaram, in an interview with Bloomberg Television, said the rate hike would dampen inflationary expectations but not hamper demand for credit by domestic corporate sector.

RBI raised rates by a quarter-point to 5.75 per cent last week, the highest level in four years.

"It was necessary for the Bank to be ahead of the curve especially after the European bank raised rate and ... there is a clear hint that the Fed also will increase its rate," Chidambaram said.

"I don't see any major change being made at the next quarterly meeting," he added.

The Harvard-educated finance minister said domestic stock markets were overdue for a correction.

"The P/E ratios are in a comfort zone and we expect the market to stabilise," Chidambaram said.