Monetary Policy Announcement to Happen One Day Late

Monetary Policy Announcement to Happen One Day Late

Indian Market
by 5paisa Research Team Last Updated: 2022-08-08T19:00:57+05:30

In a significant shift, the government has decided to put off the announcement of the Monetary Policy for the month of February 2022 by a day. Now the MPC meet will start on 08-Feb instead of 07-Feb and the 3-day meeting will not conclude on 10-Feb. As a result, the monetary policy announcement will happen on 10-Feb instead of 09-Feb. This is the sixth and last monetary policy announcement of the financial year 2021-22.

The decision was necessitated by the demise of Bharat Ratna Lata Mangeshkar on Sunday 06th February. Being a Bharat Ratna and a jewel in the crown of the state, the Maharashtra government declared Monday 07-February as a public holiday as a result of which all government institutions will remain shut. As a result, the banks and the financial markets were shut on Monday, forcing the RBI to postpone the start of the MPC meet.

Over the next 3 days, i.e. between 08th February and 10th February, the six members of the Monetary Policy Committee (MPC) will deliberate on critical monetary issues including the rate action, the stance of the monetary policy and the approach with respect to borrowings of the central government in the midst of a sharp spike in bond yields. The 3-day MPC meet will culminate in the policy announcement on 10-February.

Apart from being the last policy of FY22, this policy assumes special significance for more reasons than one. The US Fed has already given out an extremely hawkish monetary policy stance and that is likely to have an impact on the RBI stance. Secondly, inflation in India has been steadily sticky and that could also impact the RBI stance. Above all, the government has a huge borrowing program, for which it needs to borrow at reasonable rates.

That is why the Feb policy opens up many challenging options for the RBI. For now, the RBI would be up against a dilemma of enhancing its borrowings without enhancing the costs. At the same time, there is pressure on the RBI to keep bond yields on Indian paper attractive to entice foreign investors. The RBI will surely have a tightrope walk ahead. Hopefully, the additional one day should give the RBI more room to arrive at a well-designed approach.

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