RBI keeps up hawkish tone,says fiscal deficit keyhttps://indianexpress.com/article/news-archive/web/rbi-keeps-up-hawkish-tone-says-fiscal-deficit-key/

RBI keeps up hawkish tone,says fiscal deficit key

Many economists expect the rate to remain unchanged at an October 30 policy review

The Reserve Bank of India (RBI) Governor Duvvuri Subbarao said on Thursday inflation had to be brought down further,signalling the bank would stick to a hawkish stance,and the size of the fiscal deficit would be a key factor in determining monetary policy.

The RBI has kept its key policy repo rate unchanged since April because of inflationary pressure and widening fiscal and current account deficits.

Many economists expect the rate to remain unchanged at an October 30 policy review.

“We must recognise,it was above 10 per cent,it has come down from double-digit level to what is now at 7.5 per cent. So first,we have to acknowledge that inflation has come down,we need to bring it down further,” Subbarao said.

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“The number of things that are necessary for inflation to come down,we will take into account,as we go into our October 30 policy,” Subbarao said after a central bank board meeting.

On Wednesday,RBI deputy governor Subir Gokarn also sounded tough on fiscal prudence,saying the government had to cut subsidies.

Finance minister P Chidambaram has stepped up pressure on the central bank to cut rates,but analysts consider the reform measures as too small to soften the RBI’s anti-inflationary stance.