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7
June 2017
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R.B.I (The Total Investment & Insurance
Solutions)
The
Monetary Policy Committee (MPC) in its second review for FY2017-18 on Wednesday
kept all key policy rates unchanged while seeking to achieve consumer price
index (CPI) inflation of 4%. The repo rate under the liquidity adjustment
facility (LAF) will remain at 6.25%, while reverse repo rate will be at 6%. The
marginal standing facility (MSF) rate and the bank rate will be steady at to
6.50%. The Total Investment & Insurance
Solutions
In
a statement, the Reserve Bank of India (RBI) says, "The current state of
the economy underscores the need to revive private investment, restore banking
sector health and remove infrastructural bottlenecks. Monetary policy can play
a more effective role only when these factors are in place. Premature action at
this stage risks disruptive policy reversals later and the loss of credibility.
Accordingly, the MPC decided to keep the policy rate unchanged with a neutral
stance and remain watchful of incoming data."
The
Reserve Bank says it will continue to work in partnership with the government
to address the stress in banks’ balance sheets. Better alignment of
administered interest rates on small savings with market rates and stepped-up
recapitalisation of banks to facilitate adequate flow of credit to productive
sectors are important steps to follow through.
"The
MPC noted that incoming data suggest that the transitory effects of demonetisation
have lingered on in price formations relating to salient food items, entangled
with excess supply conditions with respect to fruits and vegetables, pulses and
cereals. At the same time, however, the latest release from the Central
Statistics Office (CSO) on national income accounts and industrial production
attest to the effects of demonetisation on the broader economy being sector
specific and transient, as well as to the noteworthy resilience of private
consumption. At this stage, it is difficult to isolate these factors or to
judge the strength of their persistence. As the year progresses, underlying
inflation pressures, especially input costs, wages and imported inflation, will
have to be closely and continuously monitored," the central bank added.
On
31 May 2017, the CSO released quarterly estimates of national income accounts
for Q4 of 2016-17, provisional estimates for 2016-17 and revisions for the
preceding five years. The growth of real gross value added (GVA) for 2016-17
has been pegged at 6.6%, 0.1 percentage point lower than the second advance
estimates released in February 2017.
 |
R.B.I Chart(The Total Investment & Insurance
Solutions)
RBI
says, "Underlying the revision is a downward adjustment in services sector
growth in Q4 for the constituents of construction, financial and professional
services, and real estate. Estimates of agriculture and allied activities have
been upgraded to incorporate the all-time high production of foodgrains and
horticulture in the year. GVA in industry has also been placed higher in the
provisional estimates relative to the earlier reading to reflect the impact of
new indices of industrial production (IIP) and wholesale prices (WPI) rebased
to 2011-12. The new data reveal that a slowdown in activity in both industry
and services set in as early as Q1 of 2016-17 and became pronounced in Q4.
Moreover, the deceleration of activity coursing through the year has had
underlying drivers that have been in operation since Q2. Components of
aggregate demand reflect a contraction in gross fixed investment in Q4,
reversing the turnaround evident in the second half of the year in the advance
estimates. This is also reflected in the contraction in the
production of capital goods in the
new IIP. However, private final consumption expenditure
recorded robust year-on-year growth." The
Total Investment & Insurance Solutions
RBI says, five members of the Committee were
in favour of the monetary policy decision, while Dr Ravindra H Dholakia was not
in favour. The minutes of the MPC’s meeting will be published by 21 June 2017. 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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