The Centre appears to be leaning hard on the RBI to continue the present interest rate regime. Days ahead of the central bank’s mid-term review of monetary policy, the government’s policy advisors argued against any hike in interest rates, fearing it could derail the economy’s incipient recovery.

The RBI’s review on October 27 will come in the backdrop of industrial output recording double-digit growth in August after a gap of 22 months but expectations of inflation crossing 7% by March.

Prime Minister’s Economic Advisory Council chairman C Rangarajan said today that the RBI is likely to keep rates unchanged, although it may tinker with liquidity. “As far as monetary policy is concerned, it has followed an accommodative policy, and unless inflationary pressure is very strong, there may not be any change in stance,” Rangarajan said. The RBI may first stop buying bonds in open market operations and then look at sucking out excess liquidity from the system, he added.

C Chaturvedi, ditional Secretary in the Department of Financial Services, said the lending growth of public sector banks is reasonably good and that the government was in favour of continuing with the expansionary policy.

Earlier, Planning Commission deputy chairman Montek Singh Ahluwalia had also maintained that the consensus at the G-20 meeting at Pittsburgh was that no country would withdraw expansionary monetary policy anytime soon.

“On October policy, I do not expect any change,” India’s chief statistician, Pronab Sen, told The Financial Express, stressing that it was “too early” for the government and RBI to roll back the fiscal and monetary stimulus. He also rebutted the argument that excess liquidity was building up in the economy.

... contd.