RBI Monetary Policy: Latest Update

IAS Prelims 2023

Following are the highlights of the sixth bi-monthly monetary policy announced by RBI:

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.