RBIs frosty reaction to govts call for rate cut

In the run up to the second quarter review of the monetary policy,RBI Governor D Subbarao had at least two meetings with finance minister P Chidambaram and Prime Minister Manmohan Singh. While,as per convention,the quantum or decision on rate cuts were not discussed,sources said the need for the fiscal and monetary policy to give out the same signals were discussed. But,the response of RBI was frosty said the source. The Governor has repeatedly stressed the need for fiscal policies to be laid out to accelerate growth in his statements earlier this year. North Block had interpreted this to mean there would be a rate cut to spur investment. Mondays surprise press conference called by the FM was meant as a follow-up to assure the Governor that the government intended to stay the course.

Subbarao had,however,pointed out that he had already cut rates by 50 basis points in April without any improvement in investment pipeline. The finance ministrys contention is that neither has inflation responded much to the 13 rounds of monetary tightening since 2010. After the policy was released,the secretary,department of economic affairs,Arvind Mayaram,said,The ball is now in the RBIs court8230; I hope they will consider one next time. There is a need for rate cut.