Expert Zone

Straight from the Specialists

Will Subbarao oblige Mukherjee?

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

“The government will be forced to take difficult decisions,” Finance Minister Pranab Mukherjee said at a FICCI event while expressing hope of a “reversal of the policy rate which should help in improving business sentiments”.

RBI Governor Duvvuri Subbarao has his own assessment of a rate cut.

On March 15, the day before the budget was presented to parliament, the RBI had its quarterly review but it passed without any change in monetary policy. Only a week before, the RBI had reduced the CRR by 75 bps to supplement liquidity which had dried up. But the repo rate was held steady.

The repo rate had been stepped up to combat inflation since March 2010 by 375 bps in thirteen instalments. Inflation, however, did not budge until November 2011 when there was a larger supply of agricultural commodities, particularly vegetables. Food prices had dropped and headline inflation was down to 6.1 percent — only to recover to 6.9 percent in February.

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