No rate cut, govt to ‘walk alone’
The Reserve Bank of India Tuesday left key lending rates unchanged and merely lowered the cash reserve ratio to boost liquidity in the system, once again choosing to focus on controlling inflation despite prodding by Finance Minister P Chidambaram to cut rates and help revive growth.
“The persistence of inflationary pressures even as growth has moderated, remains a key challenge,” RBI governor D Subbarao said as he unveiled the second quarter monetary policy review and lowered the CRR by 25 basis points.
Managing inflation will be the RBI’s key focus due to the continued “stickiness” in core inflation, he added.
CRR is the portion of deposits banks have to park with the central bank and after Tuesday’s cut, it comes down to 4.25 per cent. The repo rate, the rate at which the RBI lends to banks, remains 8 per cent. The RBI also raised its March-end inflation estimate to 7.5 per cent from the 7 per cent projected earlier and warned that inflation would rise somewhat in the October-December quarter, before easing in the January-March period.
Chidambaram, who had announced an ambitious five-year fiscal consolidation plan on Monday to signal the government’s commitment to fiscal reforms, was visibly disappointed. “Growth is as much a challenge as inflation. If government has to walk alone to face the challenge of growth, then we will walk alone,” he said.
Chidambaram has announced a series of reforms since returning as finance minister in August, hoping to revive growth by cutting expenditure on subsidies and attracting investors.
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