The Buzzword: What is more important: Minutes or meeting?

By Aurobindo Das

Minutes of the RBIs money policy review are supposed to record in detail what transpired behind the closed door during the two-day huddle of the Monetary Policy Committee (MPC).

But for a change, minutes have come to acquire more importance that the actual outcome of the event, and how! On the past two occasions, when the minutes of the MPC meetings have come out, they delivered a message on the central banks policy stance which appeared contrary to what analysts had interpreted from the MPC outcome.

Lets get a handle on these minutes and why they are making many uneasy.

First thing first. Minute, you know, is a measurement of time. But minutes are different. These are a summary of what has happened in a meeting. In the context of RBI, minutes are as significant as the policy statement itself, if not more. In fact, they reveal what plays on the minds of the six members of the rate-setting panel before they take a call on the policy rate and policy stance. The panel is also known as the MPC (Monetary Policy Committee).

This time, the minutes touched a raw nerve – an interest rate hike could be nearer than you think. Once the minutes were made public, the market turned grim. The minutes sounded more hawkish than the policy statement. RBI Deputy Governor Viral Acharyas rate hike signals set off the rumour mills, which ran fast and furious.

There are three reasons for Acharyas likely shift towards voting for a “beginning of withdrawal of accommodation in the next MPC meeting in June”. These are “complete closure of the output gap”, “international oil prices at a relatively high level”, and the retail inflation trajectory shooting above the medium-term 4 per cent target.

The rupee definitely is not a pretty picture, which is feeding the fear cycle. It has crashed to a 13-month low of 66.11, which means investors are jamming the exit door. Crude oil is also making life harder, which has raced to $74 a barrel — a three-year high.

The party after the government lowered first-half borrowing plan seems to be winding up early. The 10-year bond yield hit 7.79 per cent on Friday morning trade, a level last seen in February. The saving grace is it has recovered a bit ever since. Yields and prices are inversely related.

Original Article

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