RBI Guv meets Pranab ahead of credit policy review

PTI | 11:07 PM,Jul 21,2011 New Delhi, July 21 (PTI) Amid fears that there would be another round of interest rate hikes to tame inflation, RBI Governor D Subbarao met Finance Minister Pranab Mukherjee here today, ahead of the central bank's monetary policy review on Tuesday. "I have come to review the macro-economic situation with Finance Minister before the policy review, slated for July 26," Subbarao said after meeting Mukherjee. The meeting was also attended by other senior officials of the Finance Ministry. The Reserve Bank is scheduled to announce the first quarterly review of credit policy for 2011-12 on July 26. It is is widely believed that the central bank will increase short term lending (repo) and borrowing (reverse repo) rates by another 25 basis points. RBI has increased these key rates 10 times since March 2010 to tame the rising prices. They have gone up by 250 basis points (2.5 per cent) since then, making loans costlier for both industry as well as consumers. The headline inflation for June at 9.44 per cent is much above the comfort zone of 5-6 per cent. The central bank faces a challenging task of managing the inflationary pressure at a time when the industrial growth has started showing signs of slowing down. Besides, the resulting moderation of overall economic growth, GDP, is a major concern before RBI. The government has already lowered India's GDP projection for 2011-12 to 8.6 per cent from the earlier estimate of about 9 per cent on account of slowdown in industry output. The factory output growth rate, as measured by the Index of Industrial Production (IIP), dipped to 9-month low of 5.6 per cent in May due to a poor showing by the manufacturing and mining sectors and lower offtake of capital goods.