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FM, Subbarao meet ahead of RBI review

Source : BUSINESS_STANDARD
Last Updated: Thu, Jan 24, 2013 19:43 hrs

Reserve Bank of India Governor D Subbarao on Thursday discussed the macroeconomic situation with Finance Minister P Chidambaram, five days ahead of the monetary policy review. In an interview earlier in the day, the minister had clearly indicated his preference for a rate cut.

Most economists expect RBI to cut the repo rate (the rate at which RBI lends money to banks) in the policy review on January 29. If the rate is cut, it would be the first such instance since the central bank’s policy review in April.

“Our next quarterly review policy is scheduled for Tuesday,” Subbarao told reporters after the meeting. “According to standard practice, I have come to review the macroeconomic situation with the finance minister.”

In an interview to CNBC TV 18, Chidambaram said naturally, the finance ministry was biased in favour of growth, while RBI had an obligation to contain inflation. “These are not necessarily contradictory positions. They can converge and when they do, the governor will take a call,” he said.

The RBI governor was sensitive to the fact that just as high inflation penalised people, low growth, too, hurt everyone, Chidambaram said. “Low growth means fewer jobs, lower incomes and fewer self-employment opportunities. I am sure the governor will bear all these in mind when he takes a decision,” he said.

Yesterday, Chidambaram had played down differences between North Block and the central bank. He said contrary to perception, the finance ministry was working closely with RBI. “RBI has the autonomy to do its task of controlling inflation,” he was quoted as saying by a note prepared by Bank of America-Merrill Lynch.

After RBI had kept the repo rate unchanged in October, Chidambaram had said if necessary, the finance ministry would “walk alone to face the challenge of growth”. Just a day before that RBI policy announcement, the finance minister had announced a five-year road map to reduce the government’s fiscal deficit, hoping the central bank would cut the repo rate. In its policy review in December, the central bank had hinted it might reduce its policy rate in the first quarter of 2012-13.

India Inc has been clamouring for lower interest rates to boost industrial production, which had contracted 0.1 per cent in November, after surging 8.3 per cent in the previous month. In December, retail inflation stood at 10.56 per cent, while inflation based on wholesale prices declined to a three-year low of 7.18 per cent.

In the first half of the current financial year, the economy grew 5.4 per cent, against 7.3 per cent in the corresponding period of 2011-12. The finance minister said he expects growth in gross domestic product would fall to a 10-year low of 5.7 per cent in 2012-13, against 6.5 per cent in 2011-12.



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