Hike in rates "pre-emptive": FM

Terming the hike in repo rates by the Reserve Bank of India today as "pre-emptive action," finance minister P Chidambaram said they could be reversed if the external situation improved.

"The 25 basis points hike in repo rates, I believe, is a pre-emptive action by RBI, which wants to be ahead of the curve (in keeping inflation under check). As soon as external situation clears and stabilises, I belive it could be reversed," he said while reacting to the central bank's third quarter review of monetary policy.

What the government and RBI was keen on was to keep the inflation below 5%, and given the strong credit and consumer demand "we do not want to stoke inflationary expectations."

Chidambaram also said interest rates would be stable in the medium and long term.

The Reserve Bank has not changed the benchmark Bank Rate or CRR, Chidambaram said, adding that "this is a clear indication that in the medium term and long term, RBI wished to keep the interest rates stable."

"We have to keep a watch on the US situation on January 31 and in March. This is pre-emptive action. I understand they could be reversed if the situation is right," he added.