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9Th Aug 2016
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| RBI (The Total Investment & Insurance Solutions) |
The
Reserve Bank of India (RBI), in its third bi-monthly credit policy
review on Tuesday for FY2016-17 has kept the policy rates unchanged.
The repo rate will remain at 6.50% while the reverse repo rate under
the liquidity adjustment facility (LAF) will also remain at 6%. The
marginal standing facility (MSF) rate and the bank rate also remain
static at 7.0%.
In
a statement, RBI Governor Dr Raghuram Rajan said, "Risks to the
inflation target of 5% for March 2017 continue to be on the upside.
Furthermore, while the direct statistical effect of house rent
allowances under the 7th Central Pay Commission (CPC)’s award may
be looked through, its impact on inflation expectations will have to
be carefully monitored so as to pre-empt a generalisation of
inflation pressures. In terms of immediate outcomes, much will depend
on the benign effects of the monsoon on food prices. In view of this
configuration of risks, it is appropriate for the Reserve Bank to
keep the policy repo rate unchanged at this juncture, while awaiting
space for policy action. The stance of monetary policy remains
accommodative and will continue to emphasise the adequate provision
of liquidity. Easy liquidity conditions are already prompting banks
to modestly transmit past policy rate cuts through their marginal
cost of funds based lending rate (MCLRs) and pro-active liquidity
management should facilitate more pass-through."
Here
are the latest policy rates following RBI review…
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latest
policy rates
(The
Total Investment & Insurance Solutions)
"The
recent sharper-than-anticipated increase in food prices has pushed up
the projected trajectory of inflation over the rest of the year.
Moreover, prices of pulses and cereals are rising and services
inflation remains somewhat sticky. There are early indications,
however, that prices of vegetables are edging down. Going forward,
the strong improvement in sowing, on the back of the monsoon’s
steady progress, along with supply management measures, augurs well
for the food inflation outlook. The prospects for inflation excluding
food and fuel are more uncertain; if the current softness in crude
prices proves to be transient and as the output gap continues to
close, inflation excluding food and fuel may likely trend upwards and
counterbalance the benefit of the expected easing of food inflation.
In addition, the full implementation of the recommendations of the
7th CPC on allowances will affect the magnitude of the direct effect
of house rents on the CPI. On balance, inflation projections as given
in the June bi-monthly statement, i.e. of a central trajectory
towards 5 per cent by March 2017 with risks tilted to the upside, are
retained," Dr Rajan, who is stepping down next month, said in
his last monetary policy statement.
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CPI
(The
Total Investment & Insurance Solutions)
Commenting
on the policy review, Arundhati Bhattacharya, Chairman of State Bank
of India (SBI) said, "The RBI decision to maintain status-quo
was as per market expectations. The decision to frontload liquidity
provisions through an announcement of open market option (OMO) is a
well thought out move as capital flows have been relatively slow this
year given the global uncertainties, resulting in lower net foreign
exchange acquisition. We believe transmission of rates will happen
gradually over the next few months as credit growth picks up pace".
Looking
ahead, the RBI says, the momentum of growth is expected to be
quickened by the normal monsoon raising agricultural growth and rural
demand, as well as by the stimulus to consumption spending that can
be expected from the disbursement of pay, pension and arrears
following the implementation of the 7th CPC’s award. The passage of
the goods and services tax (GST) Bill augurs well for the growing
political consensus for economic reforms.The Total Investment &
Insurance Solutions
"While
timely implementation of GST will be challenging, there is no doubt
that it should raise returns to investment across much of the
economy, even while strengthening government finances over the
medium-term. This should boost business sentiment and eventually
investment," the central bank added.The Total Investment &
Insurance Solutions
RBI
feels the current accommodative stance of monetary policy and
comfortable liquidity conditions should also provide a congenial
environment for the reinvigoration of aggregate demand conditions.
However, successive downgrades of global growth projections by
multilateral agencies and the continuing sluggishness in world trade
points to further slackening of external demand going forward.
Accordingly, RBI retained the gross value added (GVA) growth
projection for 2016-17 at 7.6%, with risks facing the economy at this
juncture evenly balanced around it. The Total
Investment & Insurance Solutions
