RBI chief Subbarao, Pranab meet amid economic turmoil

Reserve Bank of India governor D Subbarao met finance minister Pranab Mukherjee on Friday, ahead of RBI's policy review scheduled for 25 October. The policy review generally signals changes in RBI's benchmark interest rates; and these are widely expected to be raised again to contain galloping inflation.

While such a meeting between the RBI governor and the finance minister before the policy review is routine, it has special significance this time, in view not only of the almost unprecedented price inflation but also the shakiness of global markets, which are further pulling down India's already dwindling industrial production and threatening to derail India's recent dream growth story.

Prime Minister Manmohan Singh himself today expressed doubts about whether India will meet its aim for an average economic growth of 9 per cent annually over the next five years, given economic volatility around the globe.

There is also criticism that RBI's repeated rate increases are harming industrial growth without actually taming inflation. Subbarao himself has admitted that RBI policies alone are hardly enough to curb inflation, which is mainly caused by supply restraints rather than demand.

Subbarao downplayed the importance of Friday's meeting, telling reporters in a brief interaction that it was a routine practice. "I came to review the macro-economic situation with the finance minister," he said.

The RBI has raised its repo rate, the rate at which it lends to banks, by 350 basis points over the past 18 months, but headline inflation has remained steady at over 9 per cent for almost a year. Meanwhile, industrial growth had dropped to 4.1 per cent in August.