PC expects RBI to look at fiscal steps on interest rates
Rejecting the notion that high inflation is the "new normal," RBI Governor Duvvuri Subbarao said, noting that many of theA supply-driven causes of inflation can be corrected by appropriate policies Finance Minister P Chidambaram on Friday hoped that RBI will take into account the fiscal consolidation path shown in the budget while taking a call on interest rate in its coming policy review on March 19."On the fiscal consolidation path, the government has walked the talk. RBI, of course, will take into account the overall broad economic situation and what happens between now and March 19 and take a call (on interest rate)...we have delivered on the fiscal consolidation path," he said. Chidambaram was talking to reporters after addressing the customary post-budget meeting of RBI board in New Delhi.RBI is slated to announce its mid-quarter policy review on March 19. Although the RBI had lowered the key interest rate by 0.25 per cent in January 29, the pressure is on to reduce it further with a view to arrest decline in growth. RBI had maintained tight monetary policy stance in view of high inflation and wanted government to take credible steps to reduce fiscal deficit before reducing interest rates. Chidambaram said that government has restricted fiscal deficit to 5.2 per cent for 2012-13 and promised to lower it further to 4.8 per cent."As far as the government is concerned, the government promised that we will work towards fiscal consolidation and as early as two months ago. I had said red lines that have been drawn will not be breached under any circumstances. We have delivered on fiscal consolidation path chalked out by Dr Kelkar Committee. We have remained under 5.3 per cent as promised, and we have shown, next year we will be at 4.8 per cent," he said. When asked about the government's borrowings, Chidambaram said in terms of gross borrowing "we will borrow next year only `10,000 crore more than this year"."In terms of net borrowing we will borrow only `5,000 crore more than this year," he added. In fact, he said, the borrowing programme is an indicator of the fiscally prudent path that government is working on. Rate cuts to depend on inflation Prime Minister's Economic Advisory Council Chairman C Rangarajan said policy rate cuts by the central bank will depend on inflation movement, among other factors. "It (policy rate cut by RBI) will depend upon how inflation behaves," Rangarajan said on the sidelines of an event here. Inflation measured by the Wholesale Price Index (WPI) had declined to 6.62 per cent in January. It was 7.18 per cent in December and 7.24 per cent in November. In January last year the WPI inflation was 7.23 per cent. However, he elaborated that the central bank will also take notice of action taken by the government on fiscal front to contain fiscal deficit.