There are days when you feel weather prospects are hazy. Then clouds clear up, the sun shines, and you tend to believe things are looking up. Then again, it rains cats and dogs. Something similar plays out in your financial life regularly. Benchmark stock indices touch their monthly or quarterly lows. The rupee takes a tumble and hovers around new lows. Then, over the weekend, the government announces measures to boost the economy. The uncertainty over policymaking acted as a block to investing. Suddenly, the government has ironed out irritants and made the path simple and clear. Expect financial markets to bounce back.
Financial markets are all about making informed decisions. People who worked hard and ensured they were aware of the environment around them, succeeded. As technology evolved, information began to travel quickly. Financial markets around the world got tightly knit together. As the American economy sneezed, the world caught flu. A collapse of currencies in Asia created a contagion across the globe.
In India, our government and the Reserve Bank of India are responsible for two things. The government manages the tax revenue and expenditure, RBI is expected to control the inflation. For us, the roles of both of them matters. If you are serious about managing your finances and securing your future, you need to keep track of the two key players.
Slowdown and you
It must be clearly understood here that a prolonged economic slowdown can hurt your investments and future work prospects. If you are looking for a job or planning to move jobs, you may not get one quickly. It may be a good idea to keep track of statements made by the country’s finance minister. You must not close your mind on reading up about them even if you are not trained in finance. Money matters to everyone irrespective of your educational background.
The media reports regularly about government actions. There are news reports and opinion articles written to make sense of every work the government undertakes. You need to discuss the nuances with people who know more and understand the impact of these steps on your finances. After all, it helps if you can pick up signs of a crisis early.
Inflation and interest rates
The RBI’s monetary policy committee (MPC) sets benchmark borrowing rates based on the outlook for inflation. Price rise in the economy is influenced by demand and supply of goods and services and the state of government finances. Every two months, RBI publishes a monetary policy statement. It elaborates on the state of the economy. The report elaborates factors that are likely to affect inflation. A couple of weeks after the policy statement, RBI puts out minutes of the MPC meeting.
All members of the committee give their analysis of the data points and views on the future interest rates. World markets follow these releases for the US Federal Reserve, the equivalent of RBI in America. Foreign investors, institutional investors and analysts interested in India regularly read and analyse the MPC minutes.
What you should doYour finances are dependent on the direction of economic and monetary policies. Any indication of the future trend is useful to you. The first thing you must avoid is is get overwhelmed by the flood of information. To start with, you may want to read things the finance minister announces. Cultivate the habit of reading the monetary policy statement and minutes of the MPC meeting regularly.
There could be terms you may not understand in many of the government and RBI releases. However, there is a lot of literature available online that would explain those terms to you.
With a little bit of effort, you may be able to get a sense of things happening in the economy or financial markets. If you can conclude that interest rates in the economy are likely to go down or up, you can make adjustments in your finances accordingly. In today’s world of overwhelming information, you cannot be unaware of money and factors that affect the future of your money.
How to keep yourself informed
Keep track of the statements made by the finance minister
Read news reports and opinion articles written to make sense of every work the government undertakes
Every two months, RBI publishes a monetary policy statement, elaborating on the state of the economy. Read the monetary policy statement and MPC meeting’s minutes regularly
Roles
The government manages the tax revenue and expenditure, while RBI is expected to control inflation