Subbarao to meet FM

Reserve Bank of India (RBI) Governor Duvvuri Subbarao is scheduled to meet Finance Minister P Chidambaram on Thursday ahead of the third quarter monetary policy review slated for January 29.

Subbarao is likely to discuss the prevailing domestic macro-economic as well as global situation with the Finance Minister.

The meeting also assumes significance as the January 29 review will be the one before the tabling of Union Budget 2013 that is expected to be growth oriented.

Severely impeded by high cost of capital and the slowing down of the economy, the industry expects that following the meeting with the Finance Minister the apex bank could go soft on the repo rate (a signal to banks to bring down the interest rates), which it feels should be brought down by at least 25 basis points.

The industry  feels that RBI should lower interest rates to boost industrial output, which contracted by 0.1 per cent in November.

“To kick start the slowing economy it is imperative for RBI bring down the repo rate as it will also help soften the cost of capital which is prohibitively expensive now to do business with,” a senior analyst said requesting anonymity.

Even the Finance Ministry has been advocating a gradual decrease in interest rates to revive and kick start the economy, the analyst added.

There is no silver lining to the situation. The RBI has all along maintained that it would bring down the interest rates only when inflation is between 5% and 6%, which the RBI calls  “comfort level” for a softer interest regime.

The RBI has not changed the interest rates since April on concerns of inflation. However, in its last review in December it hinted that some changes in the rates could be expected in January.

Inflation based on wholesale prices declined to a three-year low of 7.18% in December. However, retail inflation rose for the third successive month in December at 10.56%.

Earlier on Tuesday in Hong Kong, the Finance Minister said the RBI must strike a balance between needs of pushing growth and controlling inflation.

“Our stated position is that RBI must balance between the needs of stimulating growth and containing inflation,” Chidambaram said.

The Indian economy grew by 5.4% in the first half April-September of the current fiscal against 7.3% in the corresponding period of 2011-12.