Rate cuts expected after Pranab-Subbarao meet

23 February 2009

During a meeting with acting finance minister Pranab Mukherjee on Sunday, Reserve Bank of India governor Duwuri Subbarao assured him that the central bank was "constantly monitoring the situation and would take the appropriate policy action" as needed.

"The governor briefed the minister on the evolution of the global financial crisis, the outlook for the global economy and the response of the advanced and the emerging economies to the crisis based on his meetings with the other central bank governors in Basel, Switzerland, in January and in Kuala Lumpur, Malaysia, in February," an RBI said.

The development comes days after Mukherjee assured the Rajya Sabha that he would discuss further monetary steps with the RBI to combat the recession. "After consulting the RBI, if the situation requires, we may be in a position to do more," he had said.

Last week in Tokyo, Subbarao said there was room to lower interest rates further, but the question was when and by how much. The Central Statistical Organisation is due to release third quarter gross domestic product estimates by Saturday, and there is expectation of RBI announcing more measures after the data is released.

The RBI has recently taken several monetary steps to ease out liquidity crunch in the financial system, including successive cuts in key interest rates like the repo rate - the interest charged by the RBI on borrowings by commercial banks. The repo rate currently stands at 5.5 per cent, while the reverse repo is at four per cent.

Inflation fell to its lowest in more than 13 months in early February, dropping below four per cent, making it more likely that RBI would cut rates to support faltering growth. The government had earlier announced two stimulus packages to boost economic growth, which is expected to slow down from nine per cent to 7.1 per cent during the 2008-09 fiscal.