Reserve Bank of India (RBI) Governor D. Subbarao, on Friday, had a customary meeting with Finance Minister P. Chidambaram ahead of the second quarter monetary policy review on October 30.
“I met the Finance Minister, and reviewed macro-economic situation with him,” Dr. Subbarao told reporters here after the meeting.
While the RBI Governor’s meeting with the Finance Minister before the policy review is a standard practice, it is common knowledge that the Finance Ministry is on the same page with India Inc., which has been clamouring for easing of interest rates to kick-start the economy by revving up investment to spur growth.
However, with the consumer and WPI (wholesale price index)-based headline inflation still hovering much above the comfort zone of 5-6 per cent, containing the price spiral continues to remain the apex bank’s top priority. In its mid-quarterly policy review on September 17, the RBI had kept the policy rate unchanged but surprised the industry by reducing the CRR by 25 basis points to make more funds available in the banking system. In fact, the additional liquidity resulted in banks going ahead with cuts in both lending as well as deposit rates.
Economic analysts are of the view that while a cut in the short-term lending (repo) rate may not be likely on account of persisting high inflation, the RBI may reduce the CRR further by about 25-50 basis points to ease the liquidity situation.
