Ahead of the quarterly review of monetary policy on October 27, Reserve Bank of India Governor D. Subbarao on Friday held discussions with Finance Minister Pranab Mukherjee on the country’s macro-economic environment amidst hopes that the apex bank would let the accommodative stance continue without any tinkering with its key rates.

The general perception among economists, as also the Prime Minister’s Economic Advisory Council (PMEAC), is that the RBI would chose to maintain a status quo on policy rates even in the wake of inflationary pressures as the dominating factor, at present, is to spur economic recovery which is still at a nascent stage.

However, no indication of RBI’s stance was available from Dr. Subbarao after his meeting with Mr. Mukherjee as he refused to entertain any queries on either inflation or growth, except saying that he reviewed the “macro-economic situation” with the Minister.

“I am not prepared to answer any questions now because our quarterly policy review is just four days away. It is neither possible nor advisable for me to speak anything on the policy,” he said.

Responding in the same vein, Finance Secretary Ashok Chawla said: “It was a good long meeting with the Governor. He met the Finance Minister. He reviewed the situation. Rest, wait for the policy.” At the same time, asked if he still expected the apex bank to continue with its accommodative policy stance, he said: “Yes, of course.” Global rating agency Moody’s, however, is of the view that the RBI may hike the CRR (cash reserve ratio) by 50 basis points to signal a tight-money policy stance as the mandatory measure would lead to banks parking more funds with the regulator. “… the central bank will signal to markets that it has adopted a tightening bias by raising the cash reserve ratio (CRR) by 50 basis points,” the agency’s research arm Moody’s economy.com said.

Explaining the rationale of such a step, Moody’s said that a higher CRR would help in mopping up the excess liquidity built up in the banking system from strong capital inflows and deposit growth that has outpaced lending. However, it felt that the short-term lending (repo) and short-term borrowing (reverse-repo) rates might not be changed as the economic recovery is in early stages.

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