Price Hike Or Interest Hike? What To Expect From MPC Announcement Tomorrow

RBI News: RBI is holding its MPC meeting in Mumbai. Governor Shaktikanta Das, who is also the Chairman of the MPC, will announce the RBI monetary policy tomorrow.

New Delhi: Monetary Policy Committee (MPC) in India, among other things, has been entrusted with the responsibility of raising money for the government to meet the budgetary targets. This year, the MPC has an unprecedented dilemma. Inflation is soaring, but private consumption expenditure has not been at par with the pre-pandemic levels, according to data in the latest Economic Survey.

Along with this, the rising oil prices are pushing the inflation figures so high that they are barely inside the RBI’s target range of 2-6 per cent. On top of that, the government has targeted a record Rs 14.95 trillion for borrowing in the upcoming financial year, according to a report by Bloomberg. This has also put pressure on the central bank.

Currently, RBI is holding its MPC meeting in Mumbai. Governor Shaktikanta Das, who is also the Chairman of the MPC, will announce the decision of MPC tomorrow, on February 10 at 10 AM, the report by Bloomberg said.

Here we look at the key points to watch out for in MPC announcement tomorrow

Interest Hike Or Not

The inflation figures in India have been rising for the past 3 months, according to Bloomberg. Inflation rates are almost out of the set target by RBI of 2-6 per cent. Whether RBI raises the interest rates to control inflation or not is a question almost everybody is asking.

According to Bloomberg, most economists are not in the favour of rate hikes. However, most of them are in the favour of RBI raising the reverse repo rate. Due to rising crude oil prices, the inflationary pressure is expected to rise further in the coming months, the report stated.

Meeting The Borrowing Target

The government of India has erected a tall target for the upcoming year’s expenditures. The capital expenditure has been raised by over 35 per cent. According to Bloomberg, the borrowing target of Rs 14.95 trillion has been set by the government. But RBI faces a challenge here.

The bond yields have been rising constantly. These yields make borrowing more expensive for the RBI as they have to pay more interest to the lenders. It would be interesting to look at how the RBI plans to raise money for the government.

Stance For Growth

RBI has adopted an accommodative stance for the Indian Economy since the pandemic struck. According to Economic Survey, the government expects a growth rate of 88.5 per cent in the next fiscal. But for this, the government needs to spend more.

It remains to be seen for how long does the RBI keep its accommodative stance amidst the rising oil prices and expanding budgetary expenditure, according to Bloomberg.

Market Reaction

Indian share markets have been jittery for the past few weeks in anticipation of the rate hikes. First, global markets plunged in anticipation of the Federal Reserve’s monetary policy decision.

Now, this is happening due to RBI’s MPC meeting. If the committee decides to hike the interest rates, markets may see a sharp correction, according to media reports. Bank deposits are considered safer than the stock markets, if they offer fair interest rates, people might pull money out of the markets.