RBI chief meets Pranab ahead of policy review

Reserve Bank of India governor Duvvuri Subbarao met with finance minister Pranab Mukherjee on Friday ahead of the bank's monetary policy review on 20 April as the government signalled it favoured a minimal hike in rates because it believes inflation is peaking.

Government officials spoke out against raising rates ahead of the bank's past two quarterly meetings for fear of choking off recovery, but have toned down their rhetoric ahead of next week's meeting as growth surges and inflation remains high, reports CNBC-TV18.

Friday's meeting is part of RBI's customary pre-monetary policy consultation with the finance ministry seen as crucial for reconciling their divergent outlooks on inflation. The RBI is independent from government, but the two institutions traditionally try to bring their economic outlooks into alignment ahead of major decisions. However, the ultimate authority for monetary policy lies with the central bank.

Signalling what many see as a dovish outlook on inflation from a growth-focused government, the finance ministry's chief economic adviser Kaushik Basu said on Friday that inflation would not climb further.

"I think actually we've peaked. Inflation's still got to remain high for a while but on a downward trajectory from now on," Basu said.

The central bank has been hawkish in its tone on inflation, and Basu's comment was seen by some analysts as a message that the government was tackling high prices and there was no need for a steep hike in rates.