PC gives a thumbs up

North Block has endorsed the hardening of short-term rates announced by Mint Street. Finance minister P Chidambaram told reporters, he was not surprised at the rise in short term made by RBI.

Commenting on the RBI’s stance, the minister said there has only been a “repricing of the short term risks”, in line with what other central banks have done. “I am not surprised at this increase. The government broadly agrees with the analysis,” he said. Mr Chidambaram also added the governor has said that productive sectors would not be denied credit.

“The whole exercise is to contain inflation, in a period when growth rates are high, international fuel prices are high and money supply is increasing,” the minister told reporters in Parliament.

He said RBI decision to raise repo and reverse repo rates by 0.25% has been prompted by the Bank’s recognition of the short-term risks to the economy. “The Indian economy is performing well. One can expect the economy to grow in a healthy and robust way.”

Disappointed with the RBI’s decision to hike short-term lending rates, apex industry and trade chambers described the move as a dampener to the growth momentum of the country. Ficci said the increase in the short-term lending rates, if translated into hike in interest rates could impede capital formation, employment generation and overall growth of the economy.

Assocham felt that the revision of the short-term lending and borrowing rates would take a toll on the overall gross domestic product (GDP) growth of the country. CII, meanwhile, has acknowledged that the RBI’s first Quarterly Review of the Annual Statement on Monetary Policy for 2006-07 is the most appropriate response to the current economic situation.

Commenting on the 25 basis points increase in repo and reverse repo rate, the CII said this is unlikely to affect the demand for long-term credit rate or the long-term fixed rate for corporate borrowing.