Government clashes with the RBI

Government clashes with the RBI

The Reserve Bank of India (RBI) is scheduled to announce key lending rates after its two-day long policy review meeting. It is very much expected that the Central Bank will retain status quo as far as flirting with the rates is concerned.

Repo rate, which is the rate at which the Central Bank lends money to other banks, was last reduced in August by 25 basis points. However, the RBI had decided against any change in its last meeting in October.

The change in the lending rates has caused a difference between the government and RBI for a while. The government has always been pushing the Reserve Bank of the country to reduce the rates in order to provide an impetus to sagging private investment sentiments, while the central bank has been cautious because of the rising rate of inflation, which currently stands at seven-month high levels. The rate of inflation which plumped up to 3.58 per cent in the last month is still well within the RBI's target which is of 4 per cent.


But the central bank has claimed that the inflation in its current trend will surge to 4.2 to 4.6 per cent in the next six months due to multiple factors including the scheduled pay hikes for all the government employees.


Meanwhile, if RBI decides to hold repo rate at its current levels then the government would not like it much with recent data showing that the government's fiscal deficit in the year has risen to 96.1% of the full-year target by the end of October as overall receipts lagged behind expenditure. With the economy showing signs of recovery, the government will be expecting investments in order to fructify the green shoots.