Ahead of the Reserve Bank’s monetary policy review slated for later this month, central bank Governor D. Subbarao on Saturday met Finance Minister Pranab Mukherjee.
However, Mr. Subbarao refused to reply to reporters’ query on whether inflation that has touched 7.31 per cent in December has breached the RBI’s comfort zone.
The apex bank had projected inflation to reach 6.5 per cent by March-end.
With food inflation, that stood at 17.28 per cent during the week ended January 2, spreading to other items, the RBI is expected to squeeze money supply.
However, the apex lender has to ensure that interest rates do not rise in the process, as any such hike may hurt the economic rebound that is still fragile.
Experts also believe that if the RBI sucks out some liquidity, it may not raise interest rates, since liquidity is excess in the system.
The economy surprised experts when it grew by 7.9 per cent in the second quarter of this fiscal. However, the growth is still fragile as it largely depends on stimulus provided by the government and a high growth rate of 9-10 per cent is still to be achieved.
The RBI is scheduled to come out with monetary review on January 29.