Rajan meets Jaitley ahead of monetary policy review

Days ahead of bi-monthly monetary policy review, Reserve Bank Governor Raghuram Rajan today met Finance Minister Arun Jaitley to discuss economic issues.

"I was caught up on economic issues with the Finance Minister," Rajan said after the meeting here.

The RBI is scheduled to announce its third bi-monthly Monetary Policy Review on August 5.

When asked about stock markets plunging today, Rajan said: "We are not immune to what is happening in world markets."

The BSE benchmark index Sensex today plummeted by 414.13 points to end the day at 25,480.84 points.

There is a widespread expectation that the RBI is likely to maintain status quo in the policy review.

However, the industry is pitching for the rate cut to boost industrial activities.

Exhibiting signs of revival, India's manufacturing activity, gauged by the Index of Industrial Production (IIP), had risen to 19-month high of 4.7 per cent in May on account of improved output from mining, power and capital goods sector.

Besides improved industrial activity, retail inflation fell to a 30-month low of 7.31 per cent in June as prices of food items, including vegetables, came down.

Wholesale Price Index (WPI) based inflation in June fell to 5.43 per cent after rising to a five-month high in the previous month.

In its last policy review in June, the RBI had kept the repo rate--at which it lends to the banks-- unchanged at 8 per cent.

However, the central bank had cut the statutory liquidity ratio (SLR) by 0.5 per cent to 23 per cent that allowed banks to have an additional Rs 40,000 crore and expanded their scope for more freedom to give credit to non-government sector.

Committed to keeping the economy on a disinflationary course, considering CPI inflation at 8 per cent by January 2015 and 6 per cent by January 2016, RBI said that further policy tightening will not be warranted if the economy stays on this course.

"On the other hand, if disinflation, adjusting for base effects, is faster than currently anticipated, it will provide headroom for an easing of the policy stance," it had said.