With the second quarter monetary policy review of the Reserve Bank of India (RBI) less than a week away, the central bank’s Governor Raghuram Rajan on Thursday met Finance Minister P Chidambaram and discussed the prevailing macroeconomic situation, even as Prime Minister’s Economic Advisory Council (PMEAC) Chairman C Rangarajan trashed the pessimistic outlook of the International Monetary Fund (IMF) and the World Bank on the Indian economy, and claimed that it would grow at 5.5 per cent this fiscal.
“I discussed whole set of issues with the Finance Minister including state of economy,” Rajan told media persons after the meeting.
Rajan, who was Chief Economic Advisor in the Finance Ministry before taking over as RBI Governor on September 4, is scheduled to announce the second-quarter monetary policy review on October 29.
High inflation offers Rajan limited scope to cut key rates as demanded by industry to spur growth.
Rising food prices, especially of onion and other vegetables, pushed up September inflation to 7-month high of 6.46 per cent.
The Wholesale Price Index (WPI) based inflation rose for the fourth month in a row. Inflation was 6.1 per cent in August and 5.85 per cent (revised upward from 5.79 per cent) in July. In September last year, it was 8.07 per cent.
The sharpest increase was in onion prices which jumped by 322.94 per cent in September, over the same month last year.
In its last policy review on September 20, a hawkish RBI raised the policy rate by 0.25 per cent as it kept its focus on controlling inflation.
The repo rate or the short term lending rate has been increased by 25 basis points to 7.5 per cent from 7.25 per cent.
Meanwhile PMEAC Chairman C Rangarajan exuded confidence that the economy would grow at 5.5 per cent in the current fiscal.
“These institutions (IMF and World Bank) are unduly pessimistic. We think the growth rate will be between 5 and 5.5 per cent. We have projected growth rate of 5 per cent earlier, which I think still holds,” Rangarajan said on the sidelines of Global Conference on Financial Inclusion & Payment System.
Earlier this month, the World Bank slashed India’s economic growth forecast for the current financial year to 4.7 per cent from an earlier projection of 6.1 per cent.
Meanwhile, IMF in its World Economic Outlook, projected an average growth rate of about 3.75 per cent, based on market prices, for India in 2013-14, that is expected to pick up to 5.1 per cent next fiscal.
last month, the Prime Minister’s Economic Advisory Council (PMEAC) had lowered the growth forecast for the current financial year to 5.3 per cent from 6.4 per cent it had projected earlier.
Rangarajan said agriculture will do extremely well. “Monsoon has been extremely good. This will result in pick up the rural demand. As far as manufacturing is concerned, second half will show a definite improvement. We will see the impact of measures introduced in last five to six months. There will also be a strong pick up in manufacturing in second half. Therefore, we still stand by our earlier forecast,” he said.