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6
April 2017
 |
RBI (The Total Investment & Insurance
Solutions)
The
Monetary Policy Committee (MPC) in its first review for FY2017-18 on Thursday
kept repot rate unchanged while increasing reverse repo rate by 0.25%. The repo
rate will remain at 6.25% with the MPC deciding to narrow the liquidity
adjustment facility (LAF) the reverse repo rate will increase to at 6%. The
marginal standing facility (MSF) rate and the bank rate also increased to
6.50%. The Total Investment & Insurance
Solutions
In
a statement, the Reserve Bank of India (RBI) says, "...the MPC decided to
keep the policy rate unchanged in this review while persevering with a neutral
stance. The future course of monetary policy will largely depend on incoming
data on how macroeconomic conditions are evolving. Banks have reduced lending
rates, although further scope for a more complete transmission of policy
impulses remains, including for small savings/ administered rates. It is in
this context that greater clarity about liquidity management is being provided,
even as surplus liquidity is being steadily drained out. Along with rebalancing
liquidity conditions, it will be the Reserve Bank’s endeavour to put the
resolution of banks’ stressed assets on a firm footing and create congenial
conditions for bank credit to revive and flow to productive sectors of the
economy."
"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," it added
As
per the Reserve Bank, after moderating continuously over the last six months to
a historic low, retail inflation measured by year-on-year changes in the CPI
turned up in February to 3.7%. While food prices bottomed out at the preceding
month’s level, base effects pushed up inflation in this category. Prices of
sugar, fruits, meat, fish, milk and processed foods increased, generating a
sizable jump in the momentum in the food group. In the fuel group, inflation
increased as the continuous hardening of international prices lifted domestic
prices of liquefied petroleum gas (LPG) during December 2016–February 2017.
Kerosene prices have also been increasing since July with the programmed
reduction of the subsidy. Adapting to the movements in these salient prices,
both three months ahead and a year ahead households’ inflation expectations,
which had dipped in the December round of the Reserve Bank’s survey, reversed
in the latest round. Moreover, the survey reveals hardening of price
expectations across product groups. The 77th round of the Reserve Bank’s
industrial outlook survey indicates that pricing power is returning to
corporates as profit margins get squeezed by input costs.
The
MPC feels that there are several domestic factors that would drive acceleration
in the economy. It says, "First, the pace of remonetisation will continue
to trigger a rebound in discretionary consumer spending. Activity in
cash-intensive retail trade, hotels and restaurants, transportation and
unorganised segments has largely been restored. Second, significant improvement
in transmission of past policy rate reductions into banks’ lending rates post
demonetisation should help encourage both consumption and investment demand of
healthy corporations. Third, various proposals in the Union Budget should
stimulate capital expenditure, rural demand, and social and physical
infrastructure all of which would invigorate economic activity. Fourth, the imminent
materialisation of structural reforms in the form of the roll-out of the GST,
the institution of the Insolvency and Bankruptcy Code, and the abolition of the
Foreign Investment Promotion Board (FIPB) will boost investor confidence and
bring in efficiency gains. The Total
Investment & Insurance Solutions
Fifth,
the upsurge in initial public offerings in the primary capital market augurs
well for investment and growth." The Total
Investment & Insurance Solutions
During
the meeting, six members voted in favour of the monetary policy decision. RBI
says, "...the MPC’s considered judgement call to wait out the unravelling
of the transitory effects of demonetisation has been broadly borne out. While
these effects are still playing out, they are distinctly on the wane and should
fade away by the Q4 of 2016-17. While inflation has ticked up in its latest
reading, its path through 2017-18 appears uneven and challenged by upside risks
and unfavourable base effects towards the second half of the year. Moreover,
underlying inflation pressures persist, especially in prices of services. Input
cost pressures are gradually bringing back pricing power to enterprises as
demand conditions improve. The MPC remains committed to bringing headline
inflation closer to 4.0% on a durable basis and in a calibrated manner.
Accordingly, inflation developments have to be closely and continuously
monitored, with food price pressures kept in check so that inflation
expectations can be re-anchored. At the same time, the output gap is gradually
closing. Consequently, aggregate demand pressures could build up, with implications
for the inflation trajectory." The
Total Investment & Insurance Solutions
Here
are the latest policy rates following MPC review…
Repo
Rate......................6.25%
Reverse
Repo Rate.........6%
Bank
Rate......................6.50%
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