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RBI announces second Bi-monthly Monetary Policy

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On 7th June, 2017, Reserve Bank of India (RBI) announced Second Bi-Monthly Monetary Policy Statement for financial year 2017-18. This is the fourth straight meeting wherein the Policy Repo Rate has been kept unchanged.

Post the Second Bi-Monthly Monetary Policy Statement announcement, the policy rates and reserve ratios are as follows:

Policy Repo Rate 6.25% Unchanged – since 4th October 2016
Reverse Repo Rate 6.00% Unchanged – since 6th April 217
Marginal Standing Facility Rate 6.50% Unchanged – since 6th April 217
Bank Rate 6.50% Unchanged – since 6th April 217
Cash Reserve Ratio (CRR) 4.00% Unchanged – since 9th February 2013
Statutory Liquidity Ratio (SLR) 20.00% Cut by 0.50%. Earlier it was 20.50%

Highlights of RBI’s Second Bi-Monthly Monetary Policy Statement:

  • Repo Rate and Reverse Repo Rate have been kept unchanged at 6.25 per cent and 6 per cent respectively.
  • Statutory liquidity ratio (SLR) has been cut by 50 basis points to 20 per cent starting June 24, 2017 in order to provide more liquidity to banks.
  • RBI has projected that inflation will remain between 2 to 3.5 per cent range for first half of FY 2017-18, and 3.5 to 4.5 per cent range for second half.
  • Global political and financial risks materialising into imported inflation and the RBI Monetary Policy Reviewdisbursement of allowances under the 7th central pay commission recommendations have been identified as upside risk to inflation.
  • As per RBI, implementation of the GST is not expected to have a material impact on overall inflation.
  • The policy statement has mentioned that implementation of budget proposals will boost private investment as the business environment improves with structural reforms, including the GST, the Insolvency and Bankruptcy Code, and the abolition of the Foreign Investment Promotion Board.
  • However, over-leveraged corporate sector and stressed banking sector may delay the revival in private investment demand.

Next meeting of Monetary Policy Committee is scheduled on 1st and 2nd August 2017.

RBI lowers growth forecast to 7.3% for FY18

The RBI has lowered the economic growth projection to 7.3% for the current financial year from 7.4% earlier.

  • RBI mentioned in the policy statement that remonetisation would enable pick-up in consumer spending, especially in the cash-intensive segments.
  • Moreover, reductions in banks’ lending rates post – demonetisation should support both consumption and investment demand of households and stress-free corporate.
  • It is to be noted that as per Government data released on May 31, 2017, India’s Gross Domestic Product (GDP) grew at 6.1% year-on-year in fourth quarter of financial year 2016-17 i.e. during January 2017 to March 2017. Owing to this lower number; India lost the fastest growing economy tag to Chinese economy, which grew at 6.9% during January 2017 to March 2017.