Reserve Bank of India (RBI) has kept the Repo rate unchanged at 20% in its latest Monetary Policy review while cutting the Statutory Liquid Ratio (SLR) by 50 basis points to 20%, effective 24 June.
Reserve Bank of India (RBI) has kept the Repo rate unchanged at 20% in its latest Monetary Policy review while cutting the Statutory Liquid Ratio (SLR) by 50 basis points to 20%, effective 24 June. Five of the six Monetary Policy Committee (MPC) members voted for status quo on rates, while 1 was not in favour. MPC was keen to avoid ‘premature’ action at this stage. Held To Maturity (HTM) requirements for banks have also been left unchanged. RBI’s policy decision today is consistent with a ‘neutral’ stance.
In its first monetary policy review of the financial year 2017-18, RBI in April kept the repurchase (repo) rate unchanged at 6.25%, citing upward risks to inflation and global uncertainty. The Monetary Policy Committee, however, raised the reverse repo rate by 0.25 basis points to 6% and cut the marginal standing facility (MSF) rate to 6.5%.
“The decision of the MPC is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth,” said RBI in its policy statement.
“Headline CPI inflation is set to undershoot the target of 5% for Q4 of 2016-17 in view of the sub-4% readings for January and February. For 2017-18, inflation is projected to average 4.5% in the first half of the year and 5% in the second half,” it added.
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The Indian economy slowed down to 7.1 percent in 2016-17 due to the effect of demonetisation and lost the tag of world’s fastest growing major economy tag to China. The data released by the Central Statistics Office (CSO) last week revealed that due to the impact of demonetisation, country’s economic growth slowed 3-year-low of to 7.1 per cent in 2016-17. The gross domestic production (GDP) growth for the January-March quarter slowed to 6.1 percent while GDP growth for the full financial year 2016-17 stood at a three-year low of 7.1 percent.
India’s GDP growth was 8 percent in 2015-16 and 7.5 per cent in the previous year. China had reported a growth of 6.9 percent in the January-March quarter of 2017. India had for the first time outpaced China in GDP growth rate in 2015.
In its last four policy meetings, RBI has cut interest rates by 25 basis points, kept rates unchanged, changed its stance on liquidity from ‘accommodative’ to ‘neutral’, and increased the reverse repo rate by 25 basis points, respectively.