RBI move to contain inflation, says Govt

REINING INFLATION: The RBI raised its key lending rate to a seven-year high of 9.0 per cent on Tuesday.

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New Delhi: The Government expects monetary tightening measures taken by the Reserve Bank of India (RBI) on Tuesday to help moderate inflation, the finance ministry said in a statement.

"The increase in the CRR (cash reserve ratio) and the repo rate is a signal to the banks that credit growth must be moderated, having regard to the need to moderate aggregate demand," the statement said.

The RBI raised its key lending rate by 50 basis points to a seven-year high of 9.0 per cent on Tuesday to curb inflation, now running close to 12 per cent, and dampen inflationary expectations.

The RBI also raised the cash reserve ratio, the proportion of funds that banks must keep on deposit with it, by 25 basis points to 9.0 per cent to limit the amount of inflation-stoking surplus cash in the banking system.

It will fully take effect by August 30.