Finance Minister P Chidambaram on Monday said he does not expect the Reserve Bank of India to hike interest rates in the July review of the monetary policy as feared by various quarters after the recent 0.25 per cent increase in overnight rates.
"I think what the bank did in June should hold and I don't see any major change being made in the next quarterly meet," he said.
The Reserve Bank raised reverse repo rate by 0.25 per cent to 5.75 per cent on June eight in line with hikes in Europe and Asia to curb inflation. This move triggered interest rate hike, including home loan rates, by commercial banks.
"It was necessary for the bank to be ahead of the curve," he said, referring to the wave of interest rate increases by central banks around the world last week.
He said repo rate hike was a "small correction" that was necessary to stop inflation from rising. "I think it is a precautionary move, and I think it was necessary."
Justifying the hike, RBI Governor Y V Reddy had said interest rates were hardening globally and India cannot be "out of sync" with the monetary developments in the world.
Inflation fell marginally to 4.68 per cent for the week ended May 27 from 4.74 per cent in the previous week.
Increase in prices of petrol and diesel are expected to further fuel the inflation rate. The Prime Minister's Advisory Council chairman C Rangarajan had recently said direct impact of petrol and diesel price rise on inflation is 0.4 per cent, while indirect impact through cascading effect is one per cent.