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Budget impact: RBI in a fix, market eyes rate hike amid confidence crisis

Governor Urjit Patel needs to keep interest rates low to ensure Prime Minister Narendra Modi can bridge a widening fiscal deficit

RBI, Reserve Bank of India
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A woman walks past the Reserve Bank of India (RBI) head office in Mumbai | Photo: Reuters

Subhadip Sircar, Anirban Nag | Bloomberg
The Reserve Bank of India’s job as the government’s debt manager just got harder after the federal budget unveiled a near-record $95 billion borrowing plan in the coming fiscal year.

Governor Urjit Patel needs to keep interest rates low to ensure Prime Minister Narendra Modi can bridge a widening fiscal deficit. But he also needs to bring down an inflation rate that breached the 4 per cent midpoint of the target band late last year, and which is expected to climb as the government increases spending before a general election next year.

That draws a line under the RBI’s policy easing cycle,

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