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Highlights of RBI’s sixth bi-monthly monetary policy statement

The Reserve Bank of India announced its 6th bi-monthly monetary and credit policy on January 06, 2018. It kept the key policy rate unchanged at 6 percent for the third consecutive time  in view of firming inflation. The Reserve Bank of India’s monetary policy committee on Wednesday decided to maintain status quo on the policy repo rate as it saw inflationary pressure building up in the economy. The pressure, among others, is likely to arise due to the staggered impact of house rent allowance increases by various States, the possibility of crude oil and commodity prices going up, the impact of an increase in the minimum support price for kharif crops, and fiscal slippage.

The Monetary Policy Committee (MPC), headed by RBI Governor Urjit Patel had last reduced the benchmark lending rate by 0.25 percentage points to 6 percent last August, bringing it to a 6-year low.In its December review, the MPC had kept the benchmark interest rate unchanged on concerns of a possible price rise but had left the door ajar for a rate cut in future. Retail inflation crossed the RBI’s comfort level and rose to 5.21 percent in December on increase in prices of food items. The retail inflation, based on Consumer Price Index (CPI), was 4.88 percent in November. In December 2015, it was 3.41 percent.

Highlights

* Key lending rate (repo) unchanged at 6 percent;

* Reverse repo rate remains at 5.75 percent and marginal standing facility (MSF) rate and Bank Rate at 6.25 percent;

* Monetary policy’s stance neutral;

* Petrol and diesel prices rose sharply in January, reflecting lagged pass-through of past increases in global crude prices;

* Retail inflation estimated at 5.1 percent in Q4 this fiscal and 5.1-5.6 percent in H1 of FY2018-19;

* Inflation likely to ease to 4.5-4.6 percent in H2 of FY19;

* Gross Value Added (GVA) growth for FY18 seen at 6.6 percent;

* GVA growth for 2018-19 projected at 7.2 percent;

* GST stabilising, which augurs well for economic activity;

* Early signs of revival in investment activity;

* RBI seeks pick-up in credit growth due to recapitalisation of PSBs and resolution proceedings under IBC;

* Export growth expected to improve further on account of improving global demand;

* RBI says focus of Union Budget on rural and infrastructure sectors a welcome development;

* Five members voted in favour of status quo in interest rate; one member voted for increase of 0.25 percent;

* Next meeting of the MPC on 4 and 5 April.

As was widely anticipated, the six-member committee (MPC) voted 5:1 to keep the policy repo rate (the interest rate at which banks borrow funds from the RBI to overcome short-term liquidity mismatches) unchanged at 6 per cent in the sixth and last bi-monthly monetary policy review of FY18. It continued with a neutral monetary policy stance. Market players expect the central bank to leave the policy repo rate unchanged in the first bi-monthly monetary policy review for FY2019, scheduled for April 5. “We look at inflation projections longer than what is happening in this quarter,” said Urjit Patel, RBI Governor, at a media briefing. “If you look at our 2018-19 forecast, and if you make adjustments for HRA, going forward the inflation rates are still around 4.5 per cent… In some quarters, some months, they (inflation rates) may be a little high. Taking all that into account, we felt that at this stage, without more data coming, it was not necessary to change the repo rate or the policy stance.”

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