6th Bi-monthly monetary policy statement


6th Bi-monthly monetary policy statement  


Monetary Policy:

  • Monetary policy is the Macroeconomic Policy tool used by the Central Bank to Influence Interest Rates, Inflation and Credit Availability through Changes in the Money Supply in the Economy.
  • In India, the central monetary authority is the Reserve Bank of India (RBI).
  • RBI reviews the monetary policy bi-monthly after the recommendations of Urjit Patel committee.
  • The key instruments used to control the monetary operations are, OMO, CRR, SLR, Bank rate, MSF etc.
  • Monetary policy helps in the management of exchange rate, fighting inflation, boosting investment, supervising the banks etc based on the economic situation of the country.

Monetary Policy statement

Monetary Policy Committee(MPC):

  • The MPC is a six-member committee, of which three members are from the RBI, and the other three are appointed by the Central government.
  • MPC decides the changes to be made to the policy rate (repo rate) so as to contain the inflation within the target level specified to it by the Central Government.
  • The members of MPC that have been appointed by the government will hold office for a period of four years.
  • The six member panel consists of;
    • RBI governor (presently Urjit Patel),
    • Deputy Governor of the Bank, in charge of Monetary Policy,
    • One officer of the Bank to be nominated by the Central Board,
    • Chetan Ghate, Professor, Indian Statistical Institute (appointed by government),
    • Professor Pami Dua, Director, Delhi School of Economics (appointed by government),
    • Dr. Ravindra H. Dholakia, Professor, IIM-Ahmedabad (appointed by government).

6th bi-monthly monetary policy statement:

  • Central bank released 6th and last bi-monthly monetary policy statement for this financial year on February 8.
  • Kept the monetary policy tools as unchanged
    • Repo rate: Unchanged at 6.25%
    • Reverse repo rate: Unchanged at 5.75%
    • Marginal Standing Facility (MSF): Unchanged at 6.75%
    • Bank Rate: Unchanged at 6.75%
    • Cash Reserve Ration (CRR): Unchanged at 4.00%
    • Statutory Liquidity Ratio (SLR): Unchanged at 20.75%
  • RBI cited inflation concerns after the first quarter of the next financial year, once the base effect vanishes.
  • RBI has projected inflation in the range of 4.0 to 4.5% in the first half of the financial year and in the range of 4.5 to 5.0% in the second half.
  • Central Bank changed its stance from accommodative to neutral.
  • Also lowered its GDP forecast for this fiscal at 6.9%.
  • After the announcement by central bank, Sensex drops 45.24 pts to end at 28,289.92; Nifty up 0.75 point to 8,769.05.

Expectation post demonetisation:

  • Many economists expected further reduction in the repo rate, as retail inflation dropped to 3.41% in December – much lower than the central bank’s March end forecast of 5%.