First Bi-monthly Monetary Policy Statement, 2017-18

RBI’s neutral policy is in hold mode for now. So there is no change in the repo rate.

Monetary Policy                                                                           2017-18

RBI expects growth to pick up from 6.7% (down from the previous government est. of 7%) to 7.4% in 2017-18. Inflation is expected to pick up also from 4.5% in H1 to 5% in H2 of 2017-18. According to the MPC, risks are evenly balanced around this inflation trajectory.

Please see my blog onFebruary 28, 2017. Under these circumstances, I see no change in the repo rate, at least for the next six months.

Looking over the financial year 2016-17, CPI inflation in March came in just below 4% - well below RBI’s target of 5%. Growth at 6.7% also came well below the RBI’s initial projection of 7.6% made in April last year.

The MPC announced changes in the liquidity management policy of the RBI.  To keep the operating target of monetary policy, the weighted average call money rate, closely aligned to the repo rate, the RBI announced a further reduction in the policy rate corridor – the difference between the marginal standing facility rate and the reverse repo rate – to 0.50%. Consequently, the new reverse repo rate is 6.0% and the new marginal standing facility rate is 6.5%. In April 2016, the RBI had announced that the liquidity deficit in the system would gradually move ex-ante to a neutral position. This the RBI, despite the demonetisation event and consequent surge in liquidity, has accomplished.