Leading economists welcome RBI measures

Mumbai: Leading economists have welcomed the measures initiated by the Reserve Bank of India on Tuesday in reining soaring inflation saying that the price rise has become a much serious and larger issue.

Describing the annual monetary policy announced by RBI Governor D Subbarao as a progressive one, Ernst & Young India`s Ashvin Parekh said "We have almost reached a point where inflation has become unmanageable and RBI has clearly indicated that bringing down inflation to a comfortable level is its top priority."

RBI has pegged GDP growth rate for the current fiscal at 8 per cent against the government`s projection of 9 per cent whereas the economy grew by 8.6 per cent in 2010-11.

This is clear from the Governor`s call to the government to bring down the subsidies on oil and fertilisers, failing which the apex bank may propose another rate hike in the July policy announcement, he said.

The RBI today raised its policy rates of repo and reverse repo by 50 basis points each to 7.25 percent and 6.25 percent respectively.

Repo is the rate at which RBI provides credit to banks while reverse repo is the rate at which the banks park money with the apex bank.

The RBI also asked banks to hike the savings bank rate by 50 basis points to 4 per cent so as to provided relief to depositors from inflation.

This is the ninth time since March, 2010, that the RBI has hiked the key rates as part of its efforts to cool down high inflation.

Fitch Ratings India`s DK Pant opined that as inflation has been adamantly high all these months, RBI has taken a right step to yank it down by compromising on growth, which is already visible from past many months` factory output data.