New Delhi: The Reserve Bank's hiking the key lending rate by 0.25 percent is a reflection of its "strong commitment" to check inflation, Prime Minister's Economic Advisory Council (PMEAC) Chairman C Rangarajan said Tuesday.
"This is a reflection of the strong commitment of Reserve Bank to the price stability as the chief objective of the monetary policy. I think the decision also reflects certain change in terms of the indicators that they are monitoring," Rangarajan said post RBI's third quarter monetary policy review today.
"...It is also indicated that perhaps if inflation moves along the direction expected, perhaps this may be the last in the series of increasing in the policy rates," he added.
Rangarajan said the RBI decision to raise to 8 percent the repo rate - at which it lends to banks - also reflects certain change in terms of the indicators monitored by them.
"While the Wholesale Price Inflation (WPI) remains near the comfort zone, the Consumer Price Inflation (CPI) is not. Therefore the decision to increase the interest rate is once again reflection of the shift in terms of the focus from wholesale price inflation to retail inflation," he added.
Retail or CPI inflation in December had moderated to a three month low of 9.87 percent, while the wholesale or WPI was at 5-month low of 6.16 percent.
Naina Lal Kidwai, the Country Head, India Operations of HSBC Bank said the monetary policy decision of RBI will see the "inflation responding for a change".
"The concern, of course, remains on food prices. We have not yet had enough action on some moves to ensure that food inflation comes down. But, of course we need to continue to see investment. The biggest worry is growth," she said.
Expressing no surprise over the RBI decision to hike the repo rate -- the rate at which the RBI lends money to commercial banks -- Head of Research, Standard Chartered Bank Samiran Chakraborty hoped there will be no further rate hike.
"Rate hike is not a complete surprise. The Urjit Patel Committee clearly focuses on headline inflation. We could have seen the rate hike in December as well... At this moment, I am not expecting any further rate hike," Chakraborty said.
Replying to a question on the impact of rate hike on growth, Rangarajan said that it will be higher than what RBI has projected.
"I think the growth rate will be somewhat higher than what they are projecting. I expect the growth rate for the current year itself to be around 5 percent. And perhaps the pickup in the growth in the next year will be somewhat higher than what they have indicated. I think that the growth rate next year could be in the range of 6-6.5 per cent," Rangarajan said.
In its review, the RBI has projected the GDP growth to be less than 5 percent in current fiscal. For next fiscal beginning April 1, 2014 it has projected growth to improve to 5.5 percent.