North Block allays rate fears

The Reserve Bank of India's (RBI) decision to increase the reverse repo rate by 25 basis points was unlikely to affect bank lending rates,said the finance ministry today.In fact, it could be a signal that efforts were on to curb rising inflation.

"I don't think an increase in the reverse repo rate will affect lending rates. There is enough liquidity in the market. Therefore, lending rates will be benign," Finance Minister P Chidambaram said after announcing the Monetary and Credit Policy.

"Looking at the inflationary expectations and liquidity levels, one is not seeing any pressure at this stage. Impact on interest rates is also not seen. I think, it is a signal to keep inflation under control," added Rakesh Mohan, economic affairs secretary.

The ministry also said the Centre's market borrowings for 2005 could be lower than the budgeted Rs 125,310 crore. The government is expected to borrow Rs 8,000 crore during the first week of May against the scheduled target of Rs 10,000 crore.

"Our calculations show we may not have to borrow that much (for the entire year)," Chidambaram said.

He also said the recent upward movement was because of a base effect and that inflation was under control though oil prices continued to be a cause for concern. Inflation, measured by the wholesale price index, was estimated at 5.5 per cent for the week-ended March 26.

"There cannot be a knee-jerk reaction to inflation. We will take every step to maintain price stability," Chidambaram added. In the credit policy, the Reserve Bank of India(RBI) projected a point-to-point inflation of 5-5.5 per cent for 2005-06 and forecast a 7 per cent growth in GDP.

Chidambaram said he was happy that the RBI agreed with the views of the government, which projected a 7-8 per cent growth in the Budget.

Asked to comment on the RBI's growth projections and the estimated 3 per cent agriculture growth, Chief Economic Adviser to the Prime Minister Ashok Lahiri said, "All RBI governors are conservative people. Three per cent agriculture growth is not too bad."