The Finance Minister, Mr Pranab Mukherjee has virtually endorsed the Reserve Bank of India's decision to hike its repo rate by 50 basis points, stating that such a move sends a "strong signal" towards further moderation of inflation besides checking inflationary expectations.

"It ( 50 basis points increase) is a steep rise. The RBI wanted to give a strong signal. Whether it will hurt growth, or how market will react..it has to be seen", Mr Mukherjee told reporters here soon after the RBI announced its first quarter review of monetary policy 2011-12.

This policy rate adjustment will help the country get back to a more comfortable inflation situation and "take us to the year end inflation level of 6 to 7 percent", he later said in a statement issued here on Tuesday.

On economic growth, Mr Mukherjee noted that the overall GDP growth for 2011-12 so far was in line with the momentum attained in 2010-11. This was notwithstanding some slowdown of GDP growth in the first quarter of 2011-12, as reflected in some indicators including the Index of Industrial Production and moderation in the growth of interest sensitive sectors.

The Finance Minister said that inflation had softened in the recent months, particularly so in case of food inflation. But, due to hardening of non-food manufacturing inflation, headline inflation continues to be around 9 percent.

"Although this is consistent with the RBI assumption for the first half of 2011-12, medium term concerns on growth require that we bring it down to more acceptable level at the earliest", he said.

krsrivats@thehindu.co.in

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