Key policy rate hike by RBI will tame inflation: IMC

With Purchasing Managers' Index - a lead indicator of economic activity – for October 2010 rising and suggesting that the Indian economy is again picking up,









Indian Merchants' Chamber broadly welcomed the hike in RBI\'s Key Policy Rates and hoped that the step would be effective in taming the inflation without hurting growth, which has stubbornly remained well above the comfort zone of about 6 per cent. As part of its new policy, the RBI has now raised its short-term lending and borrowing rates by 25 basis points, while retaining the CRR and Bank Rate at 6 per cent. More than the inflation, this measure will help curb inflationary expectations.









\"While inflation in the non-food prices has somewhat softened, that in the food prices has remained hard, and in fact become nearly structural in nature, which is worrisome. Also the RBI\'s observation that India might be compelled to import inflation from the global market, following a sharp rise in prices of crude and other commodities, is disturbing,\" said IMC President Mr Dilip Dandekar, in a press statement issued close on the heels of RBI announcement of its quarterly monetary policy today.









With Purchasing Managers' Index - a lead indicator of economic activity – for October 2010 rising and suggesting that the Indian economy is again picking up, "price pressures" was a major consideration for RBI to decide upon rate hikes. As persistence of high food inflation could also impact the core inflation with some time lag, RBI did not want to take a chance Mr. Dandekar added.









On the whole, in a given context national-- and international-- this is a fine balancing act. The monetary policy to give effective results has always to be complemented by the fiscal policy. Unless productivity and production of food grains, particularly pulses, improve food inflation cannot be brought under control, Mr. Dandekar pointed out.



The Chamber also welcome the following features of the policy- monitoring on the increased to an portfolio to MSMEs.









The setting up of Y H Malegam Committee on the modalities of functioning of micro finance institutions, Opening up of more branches and providing more licences to UCBs Providing roadmap for guidelines on new private banks, Working out the draft paper on deregulation of saving accounts interest, which is today allowed at 3.5% maximum








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