Millennium Post

RBI monetary policy today; will Subba Rao lower rates?

The Reserve Bank of India (RBI) stated on Monday that it expects inflation to stay high in the near term. However, the rate may soften from the January-March period, it added.

Releasing its macroeconomic and monetary development report on the eve of the half-yearly review of monetary policy, the RBI revised the average wholesale price-based inflation forecast upwards to 7.7 per cent from 7.3 per cent.  ‘Monetary policy needs to be cautious in the interim, focusing on inflation while using the available space to support growth to the degree it can,’ it said.   

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 on Tuesday, 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.


The rupee on Monday plunged by a hefty 52 paise to slip below the 54 per dollar mark for the first time in five weeks on month-end dollar demand from importers and corporates, amid the much-awaited RBI monetary policy review on Tuesday.

A firm dollar overseas, renewed capital outflows and late weakness in local stocks also weighed down on the rupee which closed at 54.08 to the greenback.

The rupee commenced sluggish at 53.88 a dollar from Friday’s close of 53.56 but tried to chart out a recovery in the initial stages as it hit a high of 53.76. Heavy demand for dollars from importers, mostly oil firm, however, forced rupee to reverse early gains and fall below the 54-mark.
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