New Delhi: The Monetary Policy Committee (MPC) in India, among others, has been given the responsibility to raise funds for the government to meet fiscal targets. This year, the MPC has an unprecedented dilemma. Inflation is soaring, but private consumer spending has not been at the same level as pre-pandemic levels, according to data from the latest economic survey.Also Read – Share Market Today: 20 Stocks To Trade Profitably On Feb 9
Along with this, rising oil prices are pushing inflation figures so high that they barely come within the RBI’s 2-6% target range. On top of that, the government has targeted a record 14.95 trillion rupees to borrow in the coming financial year, according to a Bloomberg report. It also put pressure on the central bank. Also Read – Sensex, Nifty50 Close In Green Amid High Volatility
Currently, RBI is holding its MPC meeting in Mumbai. Governor Shaktikanta Das, who is also MPC chairman, will announce the MPC’s decision tomorrow, Feb. 10 at 10 a.m., according to the Bloomberg report. Also Read – Prior to IPO, Paid-up Capital of LIC stands at Rs 6,324 Crore
Here we take a look at the key things to look out for in MPC’s announcement tomorrow
Hike of interest or not
India’s inflation figures have been rising over the past 3 months, according to Bloomberg. Inflation rates are almost out of the RBI’s target of 2-6%. Whether or not RBI raises interest rates to control inflation is a question almost everyone asks.
According to Bloomberg, most economists are not in favor of rate hikes. However, most of them are in favor of RBI increasing the reverse repo rate. Due to rising crude oil prices, inflationary pressure is expected to increase further in the coming months, the report said.
Achieve borrowing goal
The Government of India has erected a grand target for the expenditure of the coming year. Capital expenditure increased by more than 35%. According to Bloomberg, the borrowing target of Rs 14.95 trillion has been set by the government. But RBI faces a challenge here.
Bond yields have continued to rise. These yields make borrowing more costly for the RBI as they have to pay more interest to the lenders. It would be interesting to see how the RBI plans to raise funds for the government.
Position for growth
RBI has taken a dovish stance for the Indian economy since the pandemic hit. According to the Economic Survey, the government expects a growth rate of 88.5% over the next fiscal year. But for that, the government must spend more.
It remains to be seen how long the RBI will maintain its dovish stance in the face of rising oil prices and increased fiscal spending, according to Bloomberg.
Indian stock markets have been choppy in recent weeks in anticipation of rate hikes. First, global markets plunged ahead of the Federal Reserve’s monetary policy decision.
Now this is happening due to RBI’s MPC meeting. If the committee decides to raise interest rates, the markets could experience a sharp correction, according to media reports. Bank deposits are considered safer than stock markets, if they offer fair interest rates people could withdraw money from the markets.