Rajan to meet FM ahead of monetary review

Meeting comes as US FDA is expected to take a call on tapering of quantitative easing

Ahead of his first monetary review, RBI Governor Raghuram Rajan is slated to meet Finance Minister P Chidambaram here today. The meeting comes as the US Federal Reserve is expected to take a call on tapering of quantitative easing.

A six-month high inflation in August has already made things tough for Rajan at a time when industry is demanding a cut in the policy rate to boost growth. Inflation rose 6.1% in August from 5.8% in July, driven by expensive food items particularly onions, which saw price rise of 244.6% from an already high 119.4%.

Ironically, while onion prices can't be brought down by the interest rate policy, they could desist Rajan from easing the central bank’s monetary stance in its mid-quarter review on 20th of this month, even as economic growth crashed to a four-year low of 4.4% in the first quarter of 2013-14, economists said.

On the other hand, inflation in manufactured products further fell to 1.9% from 2.81%, despite depreciation of the rupee increasing imported inflation. This showed that demand in the Indian and global economy remained subdued.

Usually, it is manufactured product inflation on which RBI focuses its attention. Rather, it is core inflation within manufactured item inflation that RBI is usually concerned with. The core inflation relates to manufactured items sans food articles. It fell further to 1.9% in August from 2.3%.

The low rate of price rise in manufactured items and core inflation should have been ideal conditions for RBI to cut rates but the party is being spoilt by food articles.