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Rediff.com  » Business » RBI-Fin Min to hold talks on monetary policy

RBI-Fin Min to hold talks on monetary policy

April 28, 2011 15:59 IST
Amid concerns of rising inflation and slowdown of industrial growth, the Reserve Bank of India will hold consultations tomorrow with the government in the run-up to its annual credit policy to be announced next week.

RBI Governor D Subbarao is expected in the capital on Friday to hold pre-policy consultations with Finance Ministry officials.

"We will talk with the Governor of RBI before he announces the monetary policy. We will have a discussion. I think he is coming tomorrow," Finance Minister Pranab Mukherjee told reporters.

The RBI meeting on May 3, which will fix the policy for 2011-12, comes at a time when the industrial growth has started showing signs of lagging and inflationary pressure continues to pose a threat to the economy.

Experts say the RBI would hike its key policy rates by at least 25 basis points on May 3 to contain rising inflation.

While trying to check prices, the RBI will also be required to take initiatives to promote growth.

The central bank has already increased the short-term lending (repo) and borrowing (reverse repo) rates eight times since March, 2010 to suck out excess liquidity from the system and tame demand as a means of fighting inflation.

Headline inflation has remained above 8 per cent since January, 2010. It clocked 8.98 per cent in March this year.

At the same time, food inflation has also been running high and close to double-digits, despite government's projection of a record harvest of wheat and pulses.

To add on to troubles, core inflation, which does not factor in rise in food prices, have also started shooting up and stood at over 7 per cent in March.

While inflation has been at a sustained level, manufacturing growth has slowed down in the recent months.

Factory output, as measured by the Index of Industrial Production (IIP) slowed to 3.6 per cent in February, 2011, compared to 15.1 per cent expansion in the year-ago period.

Industrial output growth during the April-February period of 2010-11 stood at 7.8 per cent vis-a-vis the corresponding period an year ago. In contrast, industrial output had expanded by 10 per cent year-on-year in April-February, 2009-10.

In the pre-budget Economic Survey released in February, the government said it expects GDP growth to be 9 per cent this fiscal.

However, in recent weeks many global banking and brokerage majors have exuded scepticism about the number due to rising commodity prices and falling investments.