RBI governor meets PM

Reserve Bank of India (RBI) Governor D Subbarao today met Prime Minister Manmohan Singh. The meeting comes a day after the first ever pre-Budget meeting between Finance Minister Pranab Mukherjee and state governments. States have demanded that the Centre should share 50 per cent of the cost arising out of implementation of the Sixth Pay Commission recommendations. In addition, they have also asked for relaxation of fiscal deficit ceiling, so that they could borrow more, without being penalised. RBI manages the borrowing programme of states.

With the inflation rate at record-low level, India Inc is also demanding further reduction in key policy rates by RBI to boost the economic demand. Some economists do not expect any hike in policy rates by the central bank till the third quarter of 2009-10, due to absence of strong domestic fundamental support.

“While we do expect a gradual withdrawal of the quantitative easing cycle in response to improving economic indicators, we believe economic growth is still at a very nascent stage for the RBI to initiate any reversal in its interest rate stance,” said a note prepared by YES Bank economists Shubhada Rao and Bhavana Mahajan.

In a separate meeting, Singh met Mukherjee as well as Home Minister P Chidambaram and Planning Commission Deputy Chairman Montek Singh Ahluwalia. Mukherjee is expected to present the Budget on July 3.