Govt looks at ways to revive economy
With low GDP growth and high inflation hitting the economy, RBI’s new governor Raghuram Rajan on Tuesday met Prime Minister Manmohan Singh and finance minister P. Chidambaram to discuss various options before the government and the RBI.
With Assembly elections approaching and a perceived disenchantment of the middle-class votebank with the ruling party, the government is now looking at options to revive the economy.
The immediate danger to the Indian economy and the challenge before Mr Rajan is whether Ben Bernanke, the chairman of US Federal Reserve, will on Wednesday announce any intention to start withdrawal of the quantitative easing. Any aggressive withdrawal of stimulus is likely to hit India and the rupee, which in recent days has shown some stability.
“The RBI has constant consultation with the finance ministry. This meeting was a part of that. We discussed the whole gambit of issues,” Mr Rajan said after meeting Mr Chidambaram.
The policy-making US Federal Open Market Committee (FOMC) was to begin its two-day meeting on Tuesday to discuss whether to scale back its monthly $85 billion in bond purchases, or quantitative easing, to aid the economy. A statement of the FOMC’s decision will be released on Wednesday afternoon, followed by a news conference by Mr Bernanke.
The government and the RBI will need to take coordinated steps to stem any outflow of money from Indian markets in case Mr Bernanke announces any aggressive withdrawal of stimulus, government officials said.
In recent months, FIIs have adversely reacted to any signals of withdrawal of stimulus by the US Fed.
Mr Rajan is going to announce his maiden monetary policy review on Friday. Economists and investors are keeping a close watch as to what trajectory the RBI will take under Mr Rajan. The policy guidance which the RBI governor will give will be keenly looked at to determine the Central bank’s action in the coming days. Under D. Subbarao, the RBI
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