New Delhi: Terming the decision of RBI to cut CRR a step in the right direction, Planning Commission Deputy Chairman Montek Singh Ahluwalia on Tuesday said the need to push growth should take precedence over combating inflation.
"I can see that the RBI remains concerned about inflation. I think we need to watch what happens in inflation but probably the need to push the growth at this moment is little higher on agenda than the concern about inflation," Ahluwalia told reporters here.
Showing concerns over hardening inflation, the Reserve Bank on Tuesday left the key interest rate unchanged but reduced cash reserve ratio by 0.25 percent to inject Rs 17,500 crore liquidity into the financial system.
CRR or the portion of deposits banks have to park with the RBI now stands at 4.25 percent while the repo rate, at which RBI lends to the system, has been retained at 8 percent.
Ahluwalia said, "It was expected that they (RBI) would move in the direction that would be supportive of revival of growth. I do think that the reduction in the CRR is a step in that direction. Hopefully it would moderate pressure on the interest rates."
About RBI not doing enough to push growth, he said, "We have to push for growth anyway.
Monetary policy is very important aspect of the growth push, but most of what need to be done for growth, has to be done by the government and we are going to do it."
He is of the view that CRR cut would have stronger impact on interest rate than simply adjusting the repo rate because bank does not lend freely at the repo rate and it does not play the role which FED fund rate do in the US.
On fiscal consolidation road map chalked out by the Finance Minister P Chidambaram, he said, "We are determined to bring the fiscal deficit down."
On whether monetary policy is in sync with fiscal policy, he said, "...Enough has been done to indicate a start in other policies like fiscal consolidation, reforms and moving big projects... The direction that monetary should move is quite clearly to be supportive of that."
About the lowering of growth projection for this fiscal to 5.8 percent this fiscal from earlier estimates of 6.5 percent, he said, "If we do 5.8 percent GDP growth this fiscal that would actually imply very significant improvement over the results that we have got for the first quarter."
"I think that the growth in the second quarter would be similar to first quarter. If we do 5.5 in the first six months, can we do better in next half. I think we can. Therefore 5.8 percent is not broadly off the mark," he added.