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Overview of 5th Bi-monthly monetary policy 2019 released by RBI

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The Reserve Bank of India (RBI) announced its 5th Bi-Monthly Monetary Policy Rates for 2019-20 in Mumbai , Maharashtra. The three-day (December 3 – 5, 2019) policy review meeting by the 6 members of Monetary Policy Committee (MPC) was headed by RBI Governor Shaktikanta Das with the members -Dr. Chetan Ghate, Dr. Pami Dua, Dr. Ravindra H. Dholakia, Dr. Michael Debabrata Patra, Shri Bibhu Prasad Kanungo.
The next meeting of the MPC is scheduled during February 4-6, 2020.RBIs-5th-Bi-Monthly-Monetary-Policy-2019Highlights of the meet:
The announcements were made in the meeting include:
All members of the MPC unanimously voted to keeps repo rate unchanged at 5.15%  to continue with the accommodative stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target.
These decisions are in line with the aim of achieving the medium-term target for consumer price index (CPI) inflation of 4 % while supporting growth.

Current rates:

Policy Rates under Liquidity Adjustment Facility (LAF)
Repo Rate 5.15%
Reverse Repo Rate 4.90%
Marginal standing facility (MSF) Rate 5.40%
Bank Rate 5.40%
Reserve Ratios
Cash reserve Ratio (CRR) 4%
Statutory Liquidity Ratio (SLR) (18.50% from October 12, 2019 It will again change on January 4, 2020) 18.75%
GDP Prediction
GDP for 2019-20 5 % (from 6.1 %)
CPI Inflation
H1:2020-21 4.0-3.8%
H2:2019-20 5.1-4.7 %

Note:
H1,H2 means means fiscal year 1st half & second half respectively.
GDP stands for Gross Domestic Product.
CPI stands for Consumer Price Index.

GDP growth forecast lowered to 5% from 6.1%
The Reserve Bank has sharply reduced the GDP growth forecast for the current financial year –FY 20 (or 2019) to 5 % from the earlier estimate of 6.1 % due to weak domestic and external demand.

Key Points:
i.
According to the government figures, India’s economic growth has slipped to over 6-year low of 4.5 % in the second quarter of the current fiscal due to contraction in manufacturing sector output.

ii.As per RBI, Foreign exchange reserves continuously increased to a new scale of $ 451.7 billion as of December 3,2019.

RBI raises inflation projection for H2 FY20 on spike in vegetable prices
The central bank has increased  its inflation projection to 5.1-4.7 % for the second half of the current fiscal (H2:2019-20) due to the upsurge in prices of vegetables such as onion and tomatoes.

i.Previously, RBI has estimated headline inflation at 3.5-3.7% for the second half of the present fiscal year.
ii.Prices of onions, in particular, shot up by 45.3 % in September,2019 and further by 19.6 % in October 2019.
iii.As per the RBI, with measures taken by the central government to augment supply through imports can help soften vegetables prices by early February 2020.

i. Repo Rate: It is the rate at which RBI lends money to commercial banks.
Reverse Repo rate: It is the rate at which RBI borrows money from commercial banks.

ii. Cash Reserve Ratio (CRR): The share of net demand and time liabilities (deposits) that banks must maintain a cash balance with the RBI.

iii. Statutory Liquidity Ratio (SLR): The share of net demand and time liabilities (deposits) that banks must maintain in safe and liquid assets, such as government securities, cash, and gold.

iv. Bank Rate: It is the rate at which the RBI is ready to buy or rediscount bills of exchange or other commercial papers for the long term.

v. Marginal Standing Facility Rate (MSF): The rate at which the scheduled banks can borrow funds from the RBI overnight, against the approved government securities is termed as MSF.

About RBI:
Headquarters
– Mumbai, Maharashtra
Formation– 1 April 1935
Deputy Governors– 4 (BP Kanungo, N S Vishwanathan, Mahesh Kumar Jain, 1 is yet to be appointed)