Pranab Mukherjee defends rate hike by RBI

Finance Minister Pranab Mukherjee today defended the Reserve Bank of India's (RBI) decision to hike the key interest rates by 25 basis points, saying that it was aimed at taming the inflation.

"Normally it (monetary policy) is formulated in consultation with the government, and fiscal policy and monetary policy go hand in hand," Mukherjee said talking to reporters in Mumbai, when asked if the RBI should have looked at the faltering economic growth.

Mukherjee was in the city to meet the western region chief ministers and finance ministers and discus the priority sector lending. Interestingly, only Maharashtra Chief Minister Prithviraj Chavan attended this annual meeting.

Other states -- Rajasthan, Gujarat, Madhya Pradesh, Goa, Chhattisgarh and Daman & Diu -- were represented by state ministers.

Saying that inflation is too uncomfortable to be left unattended, the Union finance minister said, "RBI hiked the rates yesterday because it considers, and rightly so, that inflation is to be contained.

"It is true that for the past 15 months the crucial rates have been adjusted and though inflationary pressures have come down, particularly the food inflation -- from 22 per cent in February 2010 to little less than 10 per cent in the last fortnight, it is still very high and at unacceptable levels... (and so is core inflation which stood) at 9.8 per cent in August.

"Therefore, inflation is to be contained. And if the RBI considers it is necessary to adjust the crucial rates, they have done exactly so," Mukherjee said.

Wholesale price-based inflation has been hovering around the double-digit mark for the past four months and the latest number stands at a 13-month high of 9.78 per cent for August, which accelerated from 9.22 per cent in July. Last July, core inflation stood at 9.98 per cent.

The industry and even a section in the Finance Ministry, led by the Chief Economic Adviser to the FM Kaushik Basu, were of the view that the central bank should desist from hiking rates yet again as the slowdown is more serious than previously visualised.