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FM against tight monetary policy

business Updated: Sep 19, 2009 21:57 IST
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Finance Minister Pranab Mukherjee on Saturday said he does not favour hike in lending rates at this stage to tame inflationary pressures as economic growth would be hurt.

"At this point of time I cannot accept dear money policy or credit curbs as it will have an adverse impact on growth," Mukherjee told reporters.

Mukherjee's remarks echoes Reserve Bank Governor D Subbarao comments a few days back that RBI will not exit from stimulus measures unless sure of sustained economic recovery.

"We will not exit unless we are sure that recovery is secured," Subbarao had said.

However, once the central bank is sure that the economic recovery is secured, it will start exiting from "accommodative" monetary policy as there are inflationary pressures in the economy, Subbarao had said.

RBI started loosening money supply from October last year to mitigate the impact of the global financial crisis on the Indian economy, prompting banks to cut interest rates.

So far, the RBI has cut short-term lending rate (Repo) by 4.25 per cent, short term borrowing rate (Reverse Repo)by 2.75 per cent and the cash reserve ratio, the amount which the banks have to keep with the central bank by 4 per cent.

Indian economy grew by 6.1 per cent in the first quarter of this fiscal and experts say that it would fall further in the second and third quarters due to expected low farm growth.