Ahead of quarterly monetary policy review on October 25, RBI governor D Subbarao on Friday met finance minister Pranab Mukherjee to discuss high inflation and prevaling macroeconomic situation in the country. Experts say that RBI may increase rates further to contain the high prices.
After the meeting, Subbarao said it is a standard practice for the RBI governor to discuss the state of economy with the finance minister before review of the monetary policy.
The central bank has hiked interest rates by 350 basis points since March 2010 to deal with the persistent high inflation, including rising prices of food items. While the food inflation has touched a six-month high of 10.6% for the weak-ended October 8, the overall inflation measured by Wholesale Price Index (WPI) has been close to double-digit level since December last year.
On Thursday, Prime Minister?s Economic Advisory Council (PMEAC) chairman C Rangarajan said that as long as inflation hasn?t come down to ?acceptable level?, the primary focus of the monetary authority must be on containing it.
On Friday, Mukherjee said he is worried that food inflation has reached double-digit figure. ?The last week figure was 10.62%. Of course, for previous two weeks it was perilously close to double-digit figure. But it crossed that limit,? he added.
RBI and the government is also confronted with fresh challenges of weakening rupee which puts further pressure on inflation. Besides, slackening industrial growth leaves limited choices for RBI and the government, especially in view of difficult global economic environment.
Subbarao and Mukherjee also discussed the situation arising out of the rupee weakening to a 28-month low and crossing 50 to a dollar. A weak rupee is also adding to the inflationary pressure as it pushes up the cost of imported commodities.