RBI's 'calculative risk', Fed bets

- Bond yield jumps to 3%, RBI cancels bond auction

The Reserve Bank of India (RBI) has given a pleasant shock to all by keeping the repo-reverse repo rate unchanged for the 11th consecutive time amid strong prospects of interest rate hike. The central bank has decided to keep interest rates stable by taking a calculated risk. RBI Governor Shaktikanta Das said a sustainable and broad-based lending policy was needed to support the economic recovery. In fact, the 7.5 per cent growth forecast for 206-2 is lower than the base effect calculation.

The central bank has given a clear signal that it will remain flexible as long as it is needed. Some argue that the Reserve Bank has limited options other than bond auctions. The RBI's tough and tough decision is a big risk and the governor's favorable statement may have affected the bond market but his statement and policy remarks as the head of the central bank of a huge country like India are a reflection of the whole country.

"We are in no hurry to raise interest rates like the other central banks in the world," said Deputy Governor Michael Patra. The world is being forced to raise interest rates in the wake of the Corona crisis. The type of inflation in India is different from other countries in the world. In India, the RBI has scope to raise the reverse repo rate by 12 basis points to control system liquidity and signal an increase in interest rates.

However, without a change in interest rates in February, the RBI is likely to raise lending rates at its April monetary policy meeting, as the government's borrowing / fundraising will begin with the start of the new financial year from that month Can be created.

The RBI has also projected inflation at 7.5 per cent for the new year. Petrol-diesel prices will skyrocket after the polls in five states and the RBI fears a general rise in inflation for other reasons. All the economic data released in January indicates a slowdown in the recovery of the economy, so it can be said that the RBI has taken a calculated risk by not raising interest rates this week, but the Fed's sudden rise in interest rates or some other reason could ruin the RBI's calculations.

It may be mentioned here that following the announcement of massive borrowing by the government in the budget and speculation of interest rate hike, the bond yield jumped to the level of 8% before the lending policy. 5,000 crore bond auction canceled. However, since then, yields have fallen to a low of 7.5 per cent. Unless measures taken by the US Federal Reserve affect the value of the Indian currency, FY 207 will see lower-than-expected interest rate growth. For now, borrowers will continue to enjoy lower interest rates ...