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RBI announced Second bi-monthly monetary policy 2016-17

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Mumbai headquartered Reserve Bank of India announced Second Bi-Monthly Monetary policy for the year financial year 2016-17 and keeping unchanged the Policy rates and Reserve ratios.

Major Highlights:

  • Repo rate and Cash Reserve Ratio unchanged at 6.50 % and 4 % respectivelySecond-Bi-monthly-Monetary-Policy-2016
  • Monetary policy to remain largely stable
  • Forecasts growth at 6% for the current fiscal
  • Inflation target kept unchanged at 5% for January 2017
  • In order to maintain the current status, impact of crude oil prices and implementation of 7th Pay commission needs to be reviewed
  • Infusion of Capital in Public Sector Banks to held credit flow
  • Public investment gaining strength whereas Private investment in downward position
  • To review the implementation of the Marginal Cost Lending Rate policy by banks.
            Current Rates Rate (Remarks)
Policy Rates
Repo Rate 6.5% (Unchanged)
Reverse Repo Rate 6% (Unchanged)
Marginal Standing Facility Rate (MSF) 7% (Unchanged)
Bank Rate 7% (Unchanged)
Reserve Ratios
Cash Reserve Ratio (CRR) 4% (Unchanged)
Statutory Liquidity Ratio (SLR) 21.25% (Unchanged)

Monetary and Liquidity Measures:

Basis of Conditions of Current and upcoming economic situation, RBI decided to keep the following Policy rates and Reserve Ratios at Constant.

  • Global progress in not continuously maintaining for the first bi monthly statement of April 2016
  • GDP growth slowed down in China and Emerging Market Economies, Geo-political tensions and high volatility in financial markets hamper the growth and remains challenging
  • During the current financial year, the India Meteorological department announced that South West Monsoon has been above normal and well distributed as El Nino Wanes-albeit with a delayed onset leads to depletion in reservoir levels to 17% capacity
  • Procurement of Rabi Crops was lower in April-May 2016
  • Index of industrial production decelerated in 2015-16by weak manufacturing in an environment of subdued investment demand and weak rural consumption
  • Railway freight traffic and passenger car sales have decelerated on sector-specific constraints
  • Retail inflation increased than expected due to elevation in food prices
  • Inflation excluding food and fuel increased up in April, driven by prices of petrol and diesel embedded in transport and communication
  • Exports declined for the consecutive month in April in US dollar terms in spite of a modest increase in volume

Observations during bi-monthly monetary policy:

  • To check macroeconomic and financial developments in the following months
  • Data show high-pitched than expectedincrease in inflationary pressures originating from a number of food items as well as a reversal in commodity prices
  • Expected monsoon astutefood management and steady expansion in supply capacity and in services
  • Bearing of monetary policy remains accommodative
  • The Reserve Bank will monitor macroeconomic and financial developments for any further scope for policy action

The third bi-monthly monetary policy statement will be announced on August 9, 2016