Subbarao meets FM ahead of RBI's policy review

Subbarao meets FM ahead of RBI's policy review New Delhi: Ahead of second quarter review of credit policy, Reserve Bank Governor D Subbarao Friday met Finance Minister P Chidambaram and discussed macro-economic situation.

"I met the Finance Minister and reviewed macro-economic situation with him," Subbarao told reporters after the meeting here.

The RBI will review its monetary policy for the second quarter on October 30.

It is a standard practice for the RBI Governor to discuss the state of economy with the Finance Minister before review of the monetary policy.

In order to ease the liquidity situation, the RBI in its mid-quarterly monetary policy on September 17 had cut Cash Reserve ratio - the percentage of deposits banks keep with central bank - by 0.25 percent.

However, in view of high inflation, the central bank refrained from reducing lending rates. The RBI has made it clear that controlling inflation would be its top priority.

In its effort to bring down inflation, the RBI hiked interest rates by 350 basis points between March 2010 and October, 2011.

Industry has been clamouring for a rate cut as it feels that lower interest rate would help kickstart the investment cycle. Industrial output growth has slumped to 0.4 percent in the April-August period, down from 5.6 percent in the same period in 2011-12.

The impact of tight money policy and global economic downturn was felt in India as the economic growth in the 2011-12 fiscal fell to a nine year low of 6.5 percent. In the April-June quarter of the current fiscal, the growth was 5.5 percent.