Subbarao meets Pranab ahead of monetary review

Ahead of the annual monetary policy review on Tuesday, May 3, Reserve Bank of India (RBI) Governor D Subbarao met Finance Minister Pranab Mukherjee on Friday to discuss the macroeconomic situation.

“As a standard practice, I had come to review the macro economic situation with the finance minister and senior officers, ahead of the policy review,” Subbarao told reporters after the meeting. Asked whether high inflation would impact economic growth, Subbarao said, “We will answer these questions on May 3.”

Overall inflation in March was 8.98 per cent, higher than the central bank’s ‘comfort zone’ of five-six per cent. RBI has increased its key policy rates eight times since March last year, to check rising prices. Economists and bankers are expecting another round of raises from the central bank next Tuesday.

In its Regional Economic Outlook for Asia Pacific released this Tuesday, the International Monetary Fund had said further monetary policy tightening was necessary in Asian economies facing inflationary pressures. It said monetary and exchange rate policy should be used to contain inflation.

“Interest rates remain below levels that are consistent with stable growth and low inflation and, in many cases, are still negative in real terms,” the IMF had said.

The Reserve Bank is facing a situation where it has to contain inflation at a time when e industrial growth has started showing signs of lagging. The Index of Industrial Production slowed to 3.6 per cent in February, compared to 15.1 per cent expansion in the year-ago period.

The government is expecting the economy to grow at nine per cent in the current financial year. The IMF has said India’s economic growth rate will moderate to 8.2 per cent in 2011 and fall further in the next year, mainly because of tight monetary policy measures. It said during 2010, India, with a growth rate of 10.4 per cent, overtook China which grew by 10.3 per cent. Recently, the Asian Development Bank had projected India’s growth at 8.2 per cent for 2011-12.