RBI’s annual monetary policy on April 20

The RBI central office building in Mumbai. File Photo: Paul Noronha

The Reserve Bank on Friday said it will come out with its annual monetary policy for the next fiscal on April 20, amid expectations that the central bank will hike interest rates to tame the rising inflation.

“RBI Governor D Subbarao will announce the monetary policy for 2010-11 on April 20,” the central bank said in a release today.

Speculation has been rife that as inflation nears 10 per cent, the apex bank might squeeze money supply which will put upward pressure on interest rates.

Inflation rose to 9.89 per cent in February compared to 8.56 per cent in January. Even though food inflation dipped from a high 17.81 per cent in the last week of February to 16.30 per cent for the week ended March 6, it is still on the higher side.

The RBI move of curtailing money supply is generally relevant, if inflation is rising due to demand factors. At present, however, inflation is mainly due to food prices, which are rising due to shortage of supply.

The apex bank started reversing its soft monetary policy from its October 2009 policy when it raised the statutory liquidity ratio or the portion of deposits that banks keep in government bonds, gold and cash, by one percentage points to 25 per cent, besides discontinuing with temporary fund augmenting scheme for mutual funds.

Following up on the October move, in its third quarterly policy on January 29, RBI asked banks to keep more cash with the central bank. It did it so by raising the cash reserve ratio by 0.75 percentage points to 5.75 per cent.

Earlier RBI had been easing money supply for the economy, hit by deepening global financial crisis from the middle of September 2008.