Subbarao meets FM ahead of RBI policy review

New Delhi: Ahead of credit policy review and budget, Reserve Bank Governor D Subbarao today met Finance Minister Pranab Mukherjee and is believed to have discussed the macro-economic situation.

The RBI is scheduled to announce the mid-quarterly review of its monetary policy on March 15, a day before the presentation of the Union Budget in Parliament.

It is a standard practice for 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 Reserve Bank in its third quarter monetary policy on January 24 had cut cash reserve ratio (CRR), the portion of deposits banks have to keep with RBI, by half a percentage point to 5.5 per cent, releasing Rs 32,000 crore in the system.

It is believed that RBI may further reduce CRR to infuse liquidity into the cash-strapped system in its upcoming review.

However, the central bank may not tinker with the policy rates before the annual policy in April. Subbarao had warned that unless the government contains fiscal deficit, rate cut is not possible.

"In the absence of credible fiscal consolidation, the RBI will be constrained from lowering the policy rates…The forthcoming budget must …begin this process in a credible and sustainable way," he had said.

In its effort to bring down inflation, the RBI hiked interest rates by 350 basis points between March 2010 and October, 2011. Headline inflation had fallen to an over two-year low of 6.55 per cent in January on cheaper food items.

Economic growth in the third quarter had slumped to an over 2-year low of 6.1 per cent.