RBI Monetary Policy June 2018 HIGHLIGHTS: The Reserve Bank of India on Wednesday decided to hike rate for the second time by 25 basis points, taking the interest rate to two year high. The interest rate was hiked to 6.5% last time in April 2016. Like last time, the RBI monetary policy meeting was held for three days, which concluded on Wednesday with the announcement of policy decision. Along with the decision on repo rate, the RBI also takes the decision on reverse repo rate, inflation and GDP outlook. The third MPC decision for the fiscal year 2018-19 has come against the backdrop of rising inflation and falling rupee. The RBI aims to keep\u00a0consumer price index (CPI) inflation of 4%\u00a0within a band of +\/- 2%, while supporting growth. HIGHLIGHTS from RBI\u2019s 3rd MPC \u2014 August 2018 FY19 Monetary and Economic Backdrop Repo rate under the liquidity adjustment facility (LAF) has been raised by 25 basis points to 6.50%. Reverse repo rate under the LAF stands adjusted to 6.25% and the marginal standing facility (MSF) rate and the Bank Rate has been adjusted to 6.75%. The MPC Committee has decided to retain the projection of GDP growth for the financial year 2018-2019 at 7.4% and 7.5% for Q1 FY20. MPC Committee maintained 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. Retail inflation has been projected at 4.4% for Q2, excluding HRA impact, 4.7-4.8% in H2 FY19 and 5% in Q1 FY20 as it expects an increase in food prices due to hike in minimum support prices (MSP). RBI Governor said that recent softening in commodity prices & GST rate cuts moderate inflation and\u00a0uncertainty around inflation needs to be carefully monitored. RBI Governor Urjit Patel said that the RBI survey of households reported an uptick of 20 basis points in inflation expectations. RBI Governor Urjit Patel also said that\u00a0volatility in global financial markets continues to impart uncertainty to the inflation outlook;\u00a0elevated crude oil prices pose great risk to global growth Though the monsoon has been normal temporally so far, its regional distribution needs to be carefully monitored in the context of key CPI components such as paddy. Bank deposits at Rs 114.8 lakh crore grew by 0.5% during April 1- July 18 compared with a contraction of (-)1.5% growth in the corresponding period last year. The overall banking system liquidity (i.e. total reverse repo \u2013 Total repo \u2013 MSF) continues to be pressured with liquidity deficit witnessing a sustained increase in the last three weeks. The Central Government has auctioned Cash Management Bills (CMBs) amounting to Rs 65,000 crores since the last monetary policy ( i.e. after June 6, 2018), indicative of liquidity pressures The 10 years GSec yields have declined from 7.92% to 7.78% during\u00a0 June 6- July 27.