New Delhi, July 12: Reserve Bank governor D. Subbarao today met Prime Minister Manmohan Singh and finance minister Pranab Mukherjee to ensure greater co-ordination between fiscal and monetary policies.
The meeting comes within two days of Mukherjee exhorting banks to lower interest rates and just ahead of the budget, which is likely to be presented in early July. Mukherjee wants Subbarao to maintain a downward bias in interest rates as this will help to keep costs down for industry and spur retail demand.
The finance ministry also wants the RBI to use its moral influence on private sector banks to nudge them towards cutting rates. While state-run banks have been reducing rates, their private rivals have been reluctant to cut rates.
Sources said there was concern over agriculture and small units not getting adequate finance at sub- PLR rates. The RBI will work on norms to persuade banks to lend more to small entrepreneurs.
The RBI has also been advising the government against increasing its fiscal deficit by cutting taxes and duties. Besides, the central bank is worried about how it will manage the large borrowing programme of the government in an orderly manner.