New Delhi: The Reserve Bank of India (RBI) has started discussions with the Finance Ministry on a new monetary policy framework, including measures to reduce retail price inflation, Governor Raghuram Rajan said on Sunday.
The RBI last Tuesday kept its policy rate unchanged for the third time in a row at 8 per cent, and set a target to bring down retail inflation to 6 per cent by March 2016.
The RBI Governor's target of lowering consumer inflation - even if it means keeping interest rates high - has raised prospects of friction with Prime Minister Narendra Modi, elected in May on his pledge to revive the economy.
"We will be discussing monetary policy framework through the course of the year. Just now we have started a preliminary discussion," Mr Rajan told a news conference after a meeting of the RBI board in New Delhi.
Mr Rajan said the Finance Ministry would develop the framework.
Finance Minister Arun Jaitley, who attended the board meeting, said the apex bank would take a final call on its 6 per cent inflation target by March 2016.
"It is an issue which the Reserve Bank (of India) decides and I am sure they factor in various circumstances," Mr Jaitley said.
Meeting the RBI's ambitious inflation target is not an easy task in a country that is facing a partial drought in some regions and is dependent on costly oil imports.
Consumer price inflation spiked to 11.2 per cent last November before three interest rate hikes ordered by Mr Rajan helped bring inflation down to 7.3 per cent in June.
On Sunday, the RBI chief added that next monetary policy steps would depend on economic data, adding that current interest rates were sufficient to meet the bank's policy targets.
He also said a cut in the statutory liquidity ratio (SLR) would not impact the government's borrowing costs as credit demand remained muted.
On August 5, the Reserve Bank of India lowered banks' minimum bond holding requirements, known as the SLR, by half a percentage point to 22.0 per cent to free up more money for lending, effective from August 9.
Copyright @ Thomson Reuters 2014
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