* RBI targets 8 pct inflation by Jan '15, 6 pct by Jan '16
* Govt aims at higher growth, lower inflation: Finance Min
* RBI and finance ministry to hold more talks on targets
* Next policy action to depend on economic data
By Manoj Kumar
NEW DELHI, Aug 10 (Reuters) - The Reserve Bank of India,
which wants to bring retail inflation down to 6 percent, on
Sunday received conditional support for this target from Finance
Minister Arun Jaitley who is putting emphasis on stronger
The central bank last Tuesday kept its policy rate unchanged
for the third time in a row at 8 percent, and set a target to
bring down retail inflation to 6 percent by January 2016.
The central bank's target of lowering inflation - even if it
means keeping interest rates high - has raised prospects of
friction with Prime Minister Narendra Modi, elected in May on
his pledge to revive the economy.
"We will be discussing monetary policy framework through the
course of the year. Just now we have started a preliminary
discussion," central bank governor Raghuram Rajan told a news
conference after a meeting of the Reserve Bank of India's board
in New Delhi.
Finance Minister Jaitley, who attended the meeting, said
policy is being geared towards attaining high growth, lower
inflation and sustainable balances, against the backdrop of
economic growth slipping below 5 percent for the last two years.
Rajan will need to tread carefully in pushing the government
into action, according to analysts. Although the RBI is not
statutorily independent from the finance ministry it has long
enjoyed wide latitude in policy-making.
In January, a RBI panel headed by deputy bank governor Urjit
Patel recommended a policy framework that would lead to 6
percent consumer price inflation by 2016.
Consumer price inflation spiked to 11.2 percent last November
before three interest rate hikes ordered by Rajan helped bring
inflation down to 7.3 percent in June.
The panel also proposed that government reduce its fiscal
deficit to 3 percent of gross domestic product by March 2017,
from 4.1 percent projected in the current fiscal year.
Rajan said more discussions would be held and the finance
ministry would develop the framework.
Meeting the RBI's ambitious inflation target is not easy in
a country facing a partial drought in some regions and
dependent on costly oil imports.
When asked whether the government agreed with the RBI's
inflation target, Jaitley avoided a direct reply.
"It is an issue which the Reserve Bank (of India) decides
and I am sure they factor in various circumstances," Jaitley
He reminded Rajan about a statement he issued on Aug. 5 in
which he asked the central bank to examine the liquidity
situation, inflation and growth in setting policy rates.
He said tax incentives have been announced in the budget to
encourage household savings and encourage investments to promote
NO INTEREST RATE RELIEF
The RBI governor dashed the hopes of policy-makers in New
Delhi, who have been pitching for lower interest rates to boost
private investment and support economic growth.
He said the RBI's next monetary policy steps would depend on
economic data, adding that current interest rates were
sufficient to meet the bank's policy targets.
The current policy rates, at 8 percent, are on target as
credit demand is also expected to remain muted despite a cut in
banks' minimum bond holding requirements, known as the SLR, by
half a percentage point to 22.0 percent, Rajan said.
"As of now we think policy is on target," he said.
(Reporting by Manoj Kumar; Editing by Mayank Bhardwaj, Douglas
Busvine and Stephen Powell)