RBI will adjust monetary policy to spur growth: Pranab

Mumbai -  Finance Minister Pranab Mukherjee Saturday exuded confidence that the Reserve Bank of India would "adjust" the monetary policy to ease macro-economic concerns of slow growth and high inflation.

"I am confident keeping in view all the factors, they (RBI) will adjust the monitory policy," Mukherjee said here at a banking and insurance conference organised by industry lobby Associated Chambers of Commerce and Industry (Assocham).

"The basic strategy should be to stimulate the domestic demand," he added.

In its mid-term policy review Monday, the RBI is expected to cut its key lending rate to spur growth as the Gross Domestic Product (GDP) had slowed to a nine-year low of 5.3 percent in the last quarter of the 2011-12 fiscal.

Mukherjee, however, said the ability of monetary policy to tackle food inflation is limited. “The supply side constraints have to be removed...the government is taking steps, not sitting idle.”

To tackle inflation, the central bank raised its key lending rate 13 times since March 2010 but began reversing the rate cycle by cutting the repo rate (at which RBI lends short term funds to banks), by 50 basis points in April.

Mukherjee said the government had suggested to the state governments to temporarily reduce the tax burden on petrol till crude prices cool down to 90 dollar per barrel in the international market.

"Difficulty has to be shared by all stakeholders." That would help the centre to reduce subsidy and bring some relief to the consumers, he said.

The conference was Mukherjee's first public engagement after he was declared the United Progressive Alliance's candidate for the presidential election next month.

The finance minister said the government was taking due note of the concerns raised by the industry and global rating agencies.

Admitting that these are "difficult times", Mukherjee assured that the government's finances remained strong and that it was "adjusting" its fiscal policy to help prop up growth.

Discussing the Eurozone crisis, the finance minister pointed out that India is as concerned as others whether Greece would continue to be part of the currency union. These developments are also impacting the value of rupee which has lost a sharp 20 percent against the dollar in the last one year, he said.

Talking about the banking sector he said that banks should focus to meet the local needs of the customers and offer specific products.

"Banks should ensure that each family should open at least one bank account so that government is able to directly transfer funds to beneficiaries through electronic banking channels," the Finance Minister said.

"They need to consolidate their progress in meeting priority sector targets,” he added.

Banks have crossed Rs.5 trillion in disbursement towards agriculture as compared to the total credit target of Rs.4.75 trillion set for them in 2012 financial year.