6th Bi-monthly monetary policy statement
- 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 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%.