New Delhi, Feb 5: Eyes will today shift focus from North Block and Dalal Street to Mint Road as the Reserve Bank of India gears up to announce decisions taken by its Monetary Policy Committee.
After three days of deliberation, RBI’s MPC will announce where interest rates are headed to from here. The move gains significance this time as earlier this week the central government unveiled its massive borrowing plan.
Most economists expect the MPC to continue holding the repurchase rate at 4%. The 10-year bond yield has gone up from 5.93% a day ahead of the Union Budget to 6.08% yesterday. The MPC cut interest rates by 115 basis points last year to maintain liquidity in the financial system but has maintained the status quo for the last three meetings.
Low-interest rates have turned out to be strong tailwind for sectors
“The market will be keenly watching the monetary policy due today, particularly the nuances of the policy and indications coming from the central bank. The policy rates are likely to remain unchanged but there can be indications on liquidity management, going forward. The RBI has a crucial role to play in growth recovery by pursuing an accommodative stance for an extended period of time. Low-interest rates have turned out to be a strong tailwind for sectors like housing and automobiles. A major macro concern is the possibility of high fiscal deficit fuelling inflation shortly. If this happens the MPC will be forced to tighten rates with its negative consequences on growth. The RBI has a challenging task ahead,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
