Ahead of the first quarterly review of credit policy on Tuesday, RBI Governor D Subbarao on Friday met Prime Minister Manmohan Singh and Finance Minister Pranab Mukherjee to review the macro economic situation.
"Tuesday is our policy review. I have come to the North Block to call on the finance minister and review the macro economic situation with him. I met the prime minister in the morning and also reviewed the macro economic situation," Subbarao told reporters after meeting Mukherjee in New Delhi.
The Reserve Bank will come out with first quarterly review on July 28. The apex bank faces a tough task taking dovish stand in view of the government's massive borrowing plans amid peculiar situation of wholesale price inflation turning into negative zone even as food prices remained high.
Inflation for the week ended July 11 stood at (-) 1.17 per cent even as prices of food articles like pulses, cereals, fruits and vegetables turned expensive.
Despite inflation remaining in the sub-zero level for the sixth consecutive week in a row, the RBI is unlikely to cut key policy rates when it reviews the credit policy on July 28.
HDFC Bank economist Jyotinder Kaur said there is enough liquidity in the system, so the RBI is likely to keep all the key rates unchanged.
Already there are fears that the interest rates could go up due to huge market borrowings of the government, pegged at Rs 4.5 lakh crore (Rs 4.5 trillion) for the current fiscal.
Earlier this week, Planning Commission Deputy Chairman Montek Singh Ahluwalia allayed fears over the significant hardening of interest rates in view of the high government borrowings.
In its annual monetary policy released on April 21, the RBI reduced the key short-term lending (repo) and borrowing rates (reverse repo) by 25 basis points each. Following which, the repo rate came down to 4.75 per cent and reverse repo rate declined to 3.25 per cent, respectively.
The cash reserve ratio (CRR), the percentage of deposits that banks keep with the central bank, has been kept unchanged at 5 per cent.
