Ahead of policy review, RBI guv and FM discuss macro-economy

Ahead of the much awaited quarterly monetary policy announcement on January 29, the RBI governor D Subbarao on Thursday met finance minister P Chidambaram to review the prevailing macro-economic situation.

The January 29 policy is crucial as the RBI has retained the key interest rate (repo rate) since March citing persisting inflation.

Though in its December policy review, the RBI had indicated that it could cut key lending rates in the January-March quarter, the RBI governor in a recent address to IIM students in Lucknow said there was little room for fiscal or monetary stimulus to boost growth in a slowing economy.

"When growth is slowing down you can stimulate the economy either by monetary easing or by fiscal stimulus, but both monetary and fiscal side have no room for stimulus. So that is the big concern," Subbarao said.

India Inc has been demanding that interest rates should be reduced to help augment industrial production, which had shrunk 0.1% in November. On the other hand, wholesale prices-based inflation had fallen to a three-year low of 7.18% in December, though retail inflation jumped up for the third consecutive month in December to 10.56%.

Recently in Hong Kong, Chidambaram had opined that RBI must balance the needs of pushing growth and curbing inflation. The GDP growth in the first half (April-September) of this fiscal was 5.4% as against 7.3% in the same period of 2011-12. According to estimates, the year-end GDP would be a decade low of 5.7%.

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