Highlights of RBI Sixth Bi-Monthly Monetary Policy
Dear Friends,
The Reserve Bank of India announced its sixth bimonthly monetary policy review for 2016-17, on February 8, 2017 and has maintained its status quo with key policy rate unchanged.
Key Policy Rates
- Repo Rate under the liquidity adjustment facility (LAF):6.25 percent (Unchanged)
- Reverse Repo Rate under the LAF: 5.75 percent (Unchanged)
- Marginal Standing Facility (MSF): 6.75 percent (Unchanged)
- Bank Rate: 6.75 percent (Unchanged)
- Cash Reserve Ratio (CRR): 4 percent (Unchanged)
- Statutory Liquidity Ratio (SLR): 20.50 percent (Unchanged)
- On the basis of an assessment of the current and evolving macroeconomic situation in the country, the Monetary Policy Committee (MPC) decided to keep the key rates unchanged.
- The RBI Monetary Policy Committee (MPC) voted 6-0 in favor of the key rates, which is the third unanimous decision in a row since it was first set up in September 2016
- Other members of MPC includes, R Gandhi, Deputy Governor RBI,. Michael Patra, Executive Director of RBI, Chetan Ghate, Professor, Indian Statistical Institute (ISI), Professor Pami Dua, Director, Delhi School of Economics (DSE), Ravindra H. Dholakia, Professor Indian Institute of Management (IIM), Ahmedabad.
- The Committee said that the environment for timely transmission of policy rates to banks lending rates will be considerably improved if:
- The banking sector’s Non-Performing Assets (NPAs) are resolved more quickly and efficiently.
- Recapitalisation of the banking sector is accelerated.The formula for adjustments in the interest rates on small savings schemes to changes in yields on government securities is fully implemented.
Main Highlights:
- Policy repo rate unchanged at 6.25%.
- Economic growth for FY17 lowered to 6.9%; RBI pegs it at 7.4% in 2017—18.
- Growth is expected to recover sharply in 2017—18.
- Retail inflation in Q4 likely to be below 5%.
- Inflation projected in the range of 4—4.5% in the first half of 2017—18 and 4.5—5% in the second half.
- Upside risks to inflation — rise in crude oil prices, volatility in exchange rate, and fuller effect of the 7th Pay Panel.
- Global growth projected to pick up modestly in 2017.
- Global trade remains subdued due to increasing tendency towards protectionist policies.
- RBI changes policy stance from ‘accommodative’ to ’neutral’
- Monetary Policy Committee (MPC) shifts policy stance to neutral keeping in mind transitory effect of demonetisation.
- Surplus liquidity to fall with progressive remonetisation; abundant liquidity with banks may persist in early 2017—18.
- High frequency indicators point to subdued activity in services sector, automobile sales, domestic air cargo, railway freight traffic, and cement production.
- Steel consumption, port traffic, international air freight, foreign tourist arrivals weathered effect of demonetisation.
- Excluding food and fuel, inflation has been unyielding at 4.9% since September.
- Makes case for faster resolution of NPAs and hastening recapitalisation of banks for lower lending rates.
- The next meeting of the Monetary Policy Committee on April 5-6.
