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A day ahead of RBI’s half yearly monetary policy review, Finance Minister P Chidambaram has expressed the hope that the central bank would take note of steps announced by the government to contain fiscal deficit and act accordingly.
“Well, I am making the statement so that everybody in India acknowledges the steps which we are taking. And also acknowledges the government is determined to bring about fiscal consolidation. And I sincerely hope that everybody will read the statement and take note of that...,” he said, when asked whether the RBI would cut rates after taking into account the steps announced by him to contain fiscal deficit.
RBI, which is scheduled to announce second quarter review of credit policy tomorrow, has at many occasions expressed concerns about the fiscal health of the government. It has been advising the government to narrow fiscal deficit so that it gets some headroom to ease monetary policy.
Government has been trying hard to spur economic growth by taking tough measures like opening of multi-brand retail to foreign investment and raising diesel prices by over Rs 5 per litre, to push economic reforms.
During the first quarter of the current fiscal, economic growth had fallen to nine-year low of 5.5 per cent. The growth in factory output in August was also not encouraging as the Index of Industrial Production (IIP) expanded by a nominal 2.7 per cent only.
RBI in its monetary policy have been maintaining that bringing down inflation is its priority. It last cut the repo rate in its annual policy by 0.5 per cent, a reduction after a gap of three years.
Meanwhile, costlier diesel fuelled inflation to 10-month high of 7.81 per cent in September.
Analysts say while RBI continuously fought inflation with 13 successive rate hikes till October 2011, the last rate hike was exactly a year ago.
Since then, the cash reserve ratio — the mandatory amount of cash deposits banks need to keep with RBI — and Statutory Liquidity ratio (SLR) have been cut by 1.50 and 1 per cent, respectively.
The repo or short-term lending rate at present is 8 per cent, while CRR is 4.50 per cent.
RBI has also injected liquidity through open market operations worth over Rs 2.1 lakh crore apart from cutting the policy rates by 0.5 per cent in March this year.
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