Neutral rate regime is back, says Pranab

Finance Minister Pranab Mukherjee said the monetary policy announced by the Reserve Bank on Tuesday is a mature one aimed at controlling inflation while sustaining growth.

Finance Minister Pranab Mukherjee said the monetary policy announced by the Reserve Bank on Tuesday is a mature one aimed at controlling inflation while sustaining growth.

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The finance minister said the steps involving cuts in both the cash reserve ratio and the signal rates will have a “gentle impact” on the money supply in the economy.

“India has now bounced back, with growth seemingly back on track and inflation, though high, on a clear downward trend. Hence, I believe that it is time to move back towards “neutral” policy rates, that is, rates that should prevail when an economy is stable and on track,” he said, signalling an end to the honeymoon period of cheap rates introduced as India coped with the fallouts of a global financial meltdown.

He said tightening of credit would not dampen growth in any sector. “Our analysis of industrial growth and credit off-take suggests that there is no reason for such apprehension. In fact, these policies will aid sustainable growth,” he said.

He, however, said that RBI’s inflation projection at 5.5 per cent for the current fiscal was much higher than the finance ministry expectations. Mukherjee expected inflation to be closer to the 4 per cent mark with an upward bias.