FM discusses rising prices with RBI governor

FM discusses rising prices with RBI governor

New Delhi: Concerned over rising prices, finance minister Pranab Mukherjee on Monday said that he has taken up the issue with the Reserve Bank, which is scheduled to announce its mid-year monetary policy review tomorrow.

“Inflation is a matter of concern. The main reason for the high level of inflation is food prices. Inflation (is expected) to further go down to a more acceptable level," he told reporters on the sidelines of an IBA conference in New Delhi.

When asked about the possible rate hike action by the central bank, Mukherjee said, “Let us wait. RBI policy statement will be made shortly... I am in discussion with RBI governor (D Subbarao)."

Subbarao had met Mukherjee on Friday and is believed to have discussed macro-economic situation with him.

Mukherjee’s comment come just ahead of the Reserve Bank’s second quarter monetary policy review tomorrow, in which the central bank is expected to hike policy rates by 25 basis points to tame inflationary pressure.

The overall inflation for September was at 8.62%, much higher than RBI’s acceptable level of 5-6%.

Food inflation, which is reigning in double digit for the past three months, is feeding the overall inflation numbers. Food inflation in mid-October stood at 13.75 %.

Since January, RBI has started reversing its soft monetary policy it began in September 2008, when global financial crisis deepened after the collapse of US financial major Lehman Brothers.

While a few economist forecast another rate hike on Tuesday, others said that a slowdown in factory output numbers of August and core-sector figures of July might force RBI to give a rethink to its rate hike decision.

Industrial output growth in August slowed to a 15-month low of 5.6% from 15.2% in July. The six-core infrastructure output slowed down to 2.5% in September from 3.9% a month ago.

In a bid to tame inflation, the central bank has hiked its key short-term lending (repo) and borrowing (reverse) rates five times so far this year and experts see another 25 basis points hike in the key policy rates by RBI on Tuesday.

This year, the RBI has raised repo and reverse repo rates by 125 and 175 basis points respectively.

It had last hiked rates in its mid-quarterly review on 16 September. The repo and reverse repo rate currently stand at 6% and 5% respectively.