These are perhaps the most important minutes kept of a meeting. The Reserve Bank of India’s monetary policy committee meets every two months to determine key borrowing rates. The RBI releases the minutes of the meeting a couple of weeks later. Financial markets keenly await the release of these minutes. While the RBI governor releases a detailed report and statements after the committee’s discussions, these minutes have insights into how committee members view the outlook for inflation and economic growth. It is true in other large economies too. Markets around the world track the minutes of the US Federal Reserve committee on interest rates.
What to look for
If you find the RBI release on the monetary policy day and the subsequent media coverage overwhelming, you can rely on these minutes to get a perspective. You will get more than one. These minutes record elaborate views of every committee member on the two most important factors for your money — inflation and growth.
Those, in the thick of finance, are looking for leads — that edge to read into the fine print to make money. However, if you are not a finance person and are looking to understand the forces that influence your money, you must give this document a read. The committee meets once in two months.
The inflation rate in the economy affects your investments and savings like none other. A consumer price inflation rate of 6% means you are losing money on all your savings, fixed deposit accounts. Inflation is eroding everything that you hope would save you on a rainy day. You need to understand the trend once in two months. Factors that influence inflation are explained well in the views of the committee members.
For example, here is one observation by J R Varma, a committee member, in the latest minutes of the meeting. “After averaging above 6% in 2020-21, inflation is forecast to be well above 5% in 2021-22 and is not expected to drop below 5% even in the first quarter of 2022-23 according to RBI projections. While there is some comfort that inflation is forecast to be below the upper end of the tolerance band, it is important to emphasise that the inflation target for the MPC is 4% and not 6% or even 5%.”
The committee member is voicing concern over the persistently high inflation rate. For the next 12-18 months, the inflation rate is likely to remain well above 5%. The committee targets an inflation rate of 4%. There is a thought that the committee should ease the limit and allow a higher inflation rate to prevail to support growth. When the inflation rate rises, you tend to raise interest rates. The committee changes the repo rate or the rate at which RBI lends money to banks. That works as a benchmark for borrowing rates that banks put on our loans. Over the past few months, the economic slowdown meant RBI has to maintain low rates. If borrowing rates in the economy rise, that could hurt any chance of a revival in the economy.
The growth projection
The other helpful commentary is about economic growth. For example, here is a statement by another member Mridul K Sagar: Growth recovery remains fragile, accentuated by the dent caused by the second wave and continued uncertainties about pandemics driven by distance to herd immunity and virus mutations. Risks that recovery can falter ahead remain on a number of counts.
The RBI committee expected a regular monsoon season. However, the latest indicators suggest that the monsoon is falling short of expectations. Besides that, the services sector that accounts for more than half of India’s economic growth is still performing below the pre-pandemic levels.
What it means to you
Inflation erodes the value of your savings and investment. At the same time, efforts are on to boost economic growth. You need to increase your regular investments. You need to increase your exposure to equity or equity-linked assets. However, there is another problem. Benchmark indices are trading at a record high. If you have yet to start investing, you may want to take the first steps by putting money into hybrid mutual funds as share prices could turn volatile in the short term.
(The writer is editor-in-chief at www.moneyminute.in)