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'RBI's sharp rate hike unexpected but needed'

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Press Trust Of India

Last Updated: July 26, 2011, 22:27 IST

'RBI's sharp rate hike unexpected but needed'

Chief Economic Advisor Kaushik Basu said both the govt as well as RBI are working together to check inflation.

New Delhi: Chief Economic Advisor Kaushik Basu on Tuesday said the sharp rise in interest rates by RBI was unexpected, but the difficult decision was needed to rein in inflation which is nearing double digit.

He said both the Government as well as RBI are working together to check inflation.

"We (Ministry of Finance and RBI) are trying to make synchronised move," Basu said, when asked whether the government was doing enough to check the price rise.

He said efforts were on to tighten liquidity in the system and controlling fiscal and revenue deficits.

The Government is committed to sticking to the fiscal deficit target of 4.6 per cent of the GDP in 2011-12, Basu said, adding, "We are trying our best to stick to 4.6 per cent target. We do hope that we will do so. We are very very serious about the target."

On RBI's rate hike, Basu said that though 50-basis points hike "was unexpected...people were not expecting 50," it needed to be done.

"RBI had to steer a course through it. It is this kind of policy...is something that I think is needed to be done..." he said.

The rate hike comes at a time when there are signs that growth is beginning to moderate, particularly in respect of some interest rate sensitive sectors.

Industry had expressed concerns that any further increase in interest rates would impact growth.

But with inflation remaining stubbornly high, the Reserve Bank of India (RBI) has continued with its anti-inflationary stance and hiked the key policy rates for 11th time since March 2010. In June, inflation was 9.44 per cent.
first published:July 26, 2011, 22:27 IST
last updated:July 26, 2011, 22:27 IST