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Finance Minister P Chidambaram has said that the Reserve Bank of India's move to raise two of its interest rates while keeping the main repurchase rate unchanged doesn't signal a shift toward a tightening bias.
"What I think the central bank did a few days ago is not to be understood as affecting the policy rate one way or another," Chidambaram said in an interview on Saturday in Moscow, where he's attending a meeting of Group of 20 finance ministers and central bankers. "That decision will be taken separately."
The Union government is trying to steady the rupee, which has weakened about seven per cent against the dollar in 2013, as the possibility of reduced US monetary stimulus undercut demand for emerging-market assets. RBI Governor D Subbarao increased the bank rate and the marginal standing facility rate on July 15 and capped daily fund injections through repo contracts.
The government has changed policies since September to fight the weakest economic growth in a decade and avert a credit-rating downgrade before a general election due by May 2014. The rupee sank to a record low 61.2125 a dollar on July 8 and was the world's worst performing currency in June.
The central bank's move to increase two of its rates was met with warnings by some economists that it will result in tightened liquidity conditions at a time of lackluster growth. RBI's next policy review meeting is on July 30.
'Good chance'
"We think there's a good chance we can grow close to 6 per cent," said Chidambaram . Basically next only to China, India is the largest growing economy.
Asia's No. 3 economy expanded 5 per cent last financial year, the weakest pace since 2003, and below the 10-year average of about 8 per cent. The economy will probably grow 6.1 per cent to 6.7 per cent in the year through March 2014, according to a survey by the finance ministry in February.
RBI left the monetary-policy benchmark, the repurchase rate, unchanged in June after the rupee's drop threatened to make imports costlier. Consumer-price inflation was 9.87 per cent last month, while wholesale inflation accelerated to a three- month high of 4.86 per cent.
The government is trying to combat the slowdown with reforms that included loosening foreign investment rules in the aviation and retail sector and easing caps and levies on purchases of local bonds by investors abroad. Restrictions in other industries are also set to be eased.
"We expect that inflows will resume," Chidambaram said.
Debt plans
When asked about the government's plans to consider issuing debt abroad or selling bonds to non-resident Indians, Chidambaram said options are on the table, no decision has been taken.
Chidambaram said he didn't think the Food Security Ordinance enacted earlier this month will adversely affect the fiscal deficit.
"When the Budget is made for the next year or the years after, this expenditure will be taken into account and the Budget will be drawn up accordingly," he added.
Under the food Bill, 67 per cent of the country's 1.2 billion people might be entitled to buy wheat, rice and coarse grains at subsidised rates. The plan involves estimated spending of $21 billion in a full financial year at current prices.
"I think the fiscal deficit consolidation plan is a well laid-out plan and we do not intend to breach the red lines in that plan," Chidambaram said.
