RBI Governor meets Pranab ahead of credit policy

Amid concerns over high inflation and the possibility of hike in key policy rates,  Reserve Bank governor D Subbarao today called on Finance Minister Pranab Mukherjee to discuss the state of economy ahead of the apex bank's monetary policy next week.  

"As a standard practice I had come to review the macro economic situation with Finance Minister and senior officers ahead of the policy review," Subbarao told reporters after meeting Mukherjee.

The Reserve Bank is scheduled to announce the annual credit policy on May 3 in Mumbai during which it is widely believed that the central bank might increase short term lending (repo) and borrowing (reverse repo) rates by around 25 basis points.

The RBI has increased these rates eight times since March 2010 to tame price rise.

The central bank faces a challenging task of managing the inflationary pressure at a time when the industrial growth has started showing signs of lagging.

On whether he anticipated high inflation to impact economic growth, Subbarao said, "We will answer these questions on May 3." The headline inflation for March at 9% breached RBI's projection of 8%. This is much higher than the comfort zone of 5-6%.

The government expects India's GDP to expand by 9% in the current fiscal. Factory output, as measured by the Index of Industrial Production (IIP) slowed to 3.6% in February 2011, compared to 15.1% expansion in the year-ago period.