Subbarao meets PM, FM ahead of policy review

Of late, the RBI has taken a series of measures to tighten liquidity and check import of gold with a view to arrest rupee fall

With bankers and industry crying foul over RBI steps to squeeze liquidity to arrest rupee fall, RBI Governor D Subbarao on Friday met PM Manmohan Singh and FM P Chidambaram in the run up to the first quarter policy review next week. The meetings assumes importance in the backdrop of RBI taking a series of steps to tighten liquidity and check gold imports with a view to rescuing rupee.

Singh in his address to captains of Indian industry last week had said that the measures taken by RBI to tighten liquidity in the system were temporary and would be reversed with volatility in the foreign exchange market subsiding.

Chidambaram too had tried to calm the worried industry by suggesting that the liquidity tightening measures of the Reserve Bank were temporary in nature and do not signal firming up of interest rates in the long-term.   

In its first quarterly review of monetary policy to be unveiled on July 30, RBI will have to take a call on rolling back the liquidity tightening measures in addition to readjusting interest rates with a view to promoting sagging economic growth.    

To check rupee decline, which fell to all-time low of 61.21 to a dollar on July 8, the central bank had raised rates at which banks borrow short-term funds from RBI and reduced their borrowing limits. Besides, it took steps to discourage gold imports and encourage repatriation of funds by exporters.