Pranab sees RBI easing monetary policy

Finance minister Pranab Mukherjee has hinted that the Reserve Bank of India (RBI) may not continue with its tight money policy, amidst a deceleration in the pace of economic growth in the country.

"I feel that the existing monetary policy of reigning in inflation may not have to be extended," Mukherjee told a meeting of the Confederation of Indian Industry (CII), in Kolkata. "If the monetary policy is extended, there will be an overall impact on the growth scenario. I am optimistic that the present monetary stance will not have to be extended."

The central bank has hiked its policy rates 11 times since March 2010. RBI will review the rate at a meeting in Mumbai on 16 September and many analysts fear that the regulator might go in for yet another hike.

RBI has been hiking rates since March 2010 in a bid to tame inflation without much success. However, inflation continues to be high, and was at 9.22 per cent in July. Food price inflation rose sharply by 10.05 per cent, while fuel price index jumped by 12.55 per cent in the year to August 20.

The finance minister was hopeful that food inflation would settle at six to seven per cent by the end of the current fiscal. He said the good monsoon would help bring down food inflation. "I hope good monsoon and elimination of seasonal factors will bring down food inflation to single digit," said Mukherjee.

India's GDP growth in the first-quarter (April-June) of the current fiscal decelerated to an 18-month low of 7.8 per cent, as against 8.8 per cent in Q1 of the previous fiscal. "It is disappointing, but not totally unexpected," said Mukherjee. "If the monsoon is good, then GDP will be better."