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Tuesday, June 15, 2010

Govt backs RBI on controlling inflation

The government gave a nod on Tuesday to the Reserve Bank of India (RBI) to take appropriate action to tame accelerating inflation, toning down earlier comments, and a central banker said a rate hike could come before a scheduled July review.

India's headline inflation unexpectedly accelerated in May, heightening expectations the Reserve Bank of India (RBI) would raise rates before its July 27 review meeting despite concerns over Europe's debt crisis.

Referring to the RBI, Finance Minister Pranab Mukherjee said: "Whatever appropriate steps are required to be taken to control inflation will be taken."

A central banker also indicated a rate hike could come soon.

"The possibility is always for the rate rise," RBI Deputy Governor K.C. Chakrabarty said when asked of the possibility of an off-cycle rate hike. "For us inflation is a bigger concern than Europe."

Mukherjee's latest remarks contrasted with comments on Monday after inflation data came in, when he had said "There will be inflationary pressures till middle of July but at this point of timeb I am not thinking of altering interest rates."

The 10-year benchmark bond yields rose to 7.67 percent, off the day's low of 7.59 percent, with dealers saying the comments by Chakarabarty had spooked the market.

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