It's high time RBI shifted focus to growth: HDFC, Axis Bank

Bankers say after fiscal reforms RBI should lean towards growth rather than inflation

The Reserve Bank should cut interest rate in its forthcoming monetary policy review to check India's growth from slipping below 5%, top private bankers Aditya Puri of HDFC Bank and Shikha Sharma of Axis Bank have said.

"RBI could give a signal because you don't want growth to come below 5%," Puri, HDFC managing director, said at a banking awards function organised by CNBCTV18 here late last evening.

Attributing the spike in September inflation - which many feel will hold back RBI from cutting rates - to diesel price hike, Puri said, "Yes, inflation has been high, but about 30 basis points is (due to) the fuel price increase, so (the actual number) is about 7.5%. I am hoping for the best."

Sharma, who is the managing director and chief executive of Axis Bank, said that after the fiscal reforms, which have a bearing on fiscal consolidation, the time has come for RBI to shift its focus towards growth now.

"While monetary policy needs to focus both on inflation and growth, given the recent fiscal measures, which are hopefully going take us towards a better situation on fiscal consolidation, I think the leaning of policy right now needs to be on growth," she said.

"We just can't afford to have growth being stopped below 5%. Therefore, I would see CRR cut by 50 basis points," she added.

All eyes are on RBI Governor D Subbarao, who is to unveil the second quarter monetary policy on October 30.

While there is growing optimism that he may walk with the government following the slew of reform measures in the past one month, the latest inflation numbers have poured cold water on any such hopes.

In September, the wholesale inflation index rose to 7.81%, a 10-month high, from 7.55% in the previous month.

The industrial production numbers at 2.7% in August indicate that manufacturing activity has rebounded.

Given these contexts, many analysts believe that the Governor cannot but continue his anti-inflationary battle that has begun over three years ago.

Meanwhile, State Bank of India chairman Pratip Chaudhuri, who raised storm recently by demanding the scrapping of CRR or cash reserve ratio, said the RBI should also focus on employment data as is being done by other countries.

"I think in their policymaking, they should also take into account the employment numbers because now so many other countries do. Every country takes very serious note of the employment numbers," he said.