Five days ahead of monetary review by the Reserve Bank of India, central bank governor D Subbarao today discussed macro-economic situation with Finance Minister P Chidambaram, who clearly indicated his preference for rate cut.
The meeting assumes significance since most economists and players expect RBI to cut the repo rate in its January 29 monetary review for the first time since April monetary policy even as retail inflation stood at its highest level of 10.56 per cent in December, 2012. Though, Subbarao gave no hint to that effect, Chidambaram in an interview to a TV channel said both high inflation and low growth hurt the people
"Our next quarterly review policy is scheduled for Tuesday. As per standard practice, I have come to review macro economic situation with the Finance Minister," Subbarao told reporters after the meeting.
Meanwhile, in an interview to CNBC TV 18, Chidambaram said the finance ministry is naturally biased in favour of growth, while the RBI has an obligation to contain inflation. "They are not necessarily contradictory positions. They can converge and when they converge the governor will take a call," he said.
He also said the governor is sensitive to the fact that just as high inflation penalises the people, low growth also penalises the people. "Low growth means fewer jobs, lower incomes, fewer self employment opportunities. I am sure the governor will bear all these in mind when he takes a decision," he said.
Yesterday, Chidambaram had said in Singapore that RBI and the finance ministry work closely together, contrary to the perception. "However, RBI has autonomy to do its task of controlling inflation," he was quoted as saying by a note prepared by Bank of America Merrill Lynch which hosted his meeting with investors in Singapore.
Earlier, Chidambaram had said if necessary, the finance ministry would “walk alone to face the challenge of growth”, after RBI kept the key policy repo rate unchanged in October. Just a day before RBI policy in October, the finance minister had announced a five-year roadmap for the Centre's fiscal deficit, hoping that the central bank would cut the repo rate.
However, in December policy review, RBI had provided some hint that it may reduce its policy rate in the first quarter of 2012-13.
India Inc has been clamouring for lowering in interest rate to boost industrial production, which contracted by 0.1 per cent in November after surging 8.3 per cent in the previous month.
Inflation based on wholesale prices declined to a three- year low of 7.18 per cent in December. However, retail inflation rose to a record in the month.
The Indian economy grew by 5.4 per cent in the first half (April-September) of the current fiscal, as against 7.3 per cent in the corresponding period of 2011-12. The finance minister expects the GDP growth to fall to a 10-year low of 5.7 per cent in 2012-13 against 6.5 per cent in 2011-12. End
