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Tuesday, March 23, 2010

Economy will grow 8.75 pc next fiscal: FM

The government remains optimistic about the country’s growth prospects even as inflation fears continue. Finance minister Pranab Mukherjee said on the sidelines of the RBI-OECD workshop that while the economy would grow by around 7.2% this fiscal, in line with the Central Statistical Organisation (CSO) projections, India is expected to grow between 8.25% and 8.75% during 2010-2011.

Mr Mukherjee’s optimism about India’s growth was also echoed by RBI deputy governor KC Chakrabarty, who said inflationary pressure would ease if two key factors — monsoon and global crude prices — are reasonably favourable.

Mr Chakrabarty said last Friday’s decision to hike the repo and reverse-repo rate by 25 bps (or 0.25%) was in line with the regulator’s desire to have an online and real-time policy. “The RBI governor will intervene (by hiking or lowering the key rates) when there is a need for intervention. We are not behind the curve (or delaying the rate hike in the wake of rising inflationary fears),” he added.

He said RBI’s decision to hike rates was right on time and was necessitated as one could not wait for three months to act. While it was always expected that the regulator would hike the rates to cool down rising inflation, the timing (in March as opposed to April when the annual policy statement is issued) caught most market analysts by surprise.

“In a surprise move late Friday, RBI hiked both repo as well as reverse repo rates by 25 bps each to anchor inflationary expectations. The central bank is more worried about the sharp acceleration in the rate of increase in prices of non-food manufactured goods,” said a report from Kotak Securities.

In its morning note, brokerage house Anand Rathi Securities, commenting on the rate hike said: “The hike’s size indicates future tightening would be nuanced rather than abrupt.”

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