Growth to top 7.75 per cent in fiscal 2010, inflationary concerns to remain

Reserve Bank of India governor D Subbarao

A meeting between Reserve Bank of India governor D Subbarao and finance minister Pranab Mukherjee fuelled speculation on Friday of a tightening of monetary policy earlier than expected to check rising prices.

With the relentless rise in prices of essential commodities over the past couple of months, the Congress-led government is under pressure to act considering the implications in a country with millions of families on marginal incomes. The issue has already been the subject of heated debates and protests in the streets and in parliament.

Subbarao said it was a routine meeting, though the macroeconomic situation would come up for discussion.

He did not elaborate on whether rising food prices would prompt a policy change. According to analysts, though it was not unusual for the two to discuss the economy, the talks could set the stage for an interest rate rise earlier than expected.

They say headline inflation numbers have indeed been a cause for worry and it was not surprising that monetary authorities and the finance ministry would meet to discuss the issue on a more urgent basis.

Some analysts expect a tightening in the next few weeks rather than at the end of January.