New Delhi: The Finance Ministry has said that RBI’s decision to hike short term lending rate and mandatory deposit requirements were a signal to banks to moderate credit growth, and expected these measures to cool down inflation, ruling at 11.89% now.
“Government expects that the measures taken by the RBI on 29 July, in continuation of the measures already taken over the last two months, will help in moderating and containing inflation,” the Finance Ministry said in a statement here.
RBI raised short-term lending rate, Repo, by 0.50% from 8.5% to 9% and mandatory deposit requirements for banks, CRR, by 0.25% to 9% with effect from the fortnight beginning 30 August, 2008.
“Increase in the CRR and Repo rate is a signal to the banks that credit growth must be moderated, having regard to the needs to moderate aggregate demand,” the statement said.
The Finance Ministry further said if requests for loans are carefully appraised and credit is allocated prudently, it is possible for the banks to ensure that adequate credit is available to the productive sectors.
The Finance Ministry referred to RBI’s macro economic review released yesterday, which stated that potential inflationary pressure from international food and energy prices are likely to remain so for some time.