In the third Bi-monthly Monetary Policy review by the RBI, the Repo rates under the Liquidity Adjustment facility has been cut by 25 bps.
The rates as of now are:
Repo Rate: 6.0%
Reverse Repo Rate: 5.75%
Marginal Standing Facility Rate: 6.25%
Bank Rate: 6.25%
Inflation targeting, as always, played a major role in this decision as the policy decision seemed to be in line with the objective of achieving inflation target of 4 per cent within a band of +/- 2 per cent, while supporting growth.
The inflation projections of RBI are given in the chart below:
Inflation is set to be affected by the following factors and their interactions:
(a) The impact on the CPI of the implementation of house rent allowances (HRA) under the 7th central pay commission (CPC);
(b) The impact of the price revisions withheld ahead of the GST ;
(c) Implementation of farm loan waivers by States may result in possible fiscal slippages and undermine the quality of public spending and affect inflation;
(d) If States implement the allowances and salaries similar to Central, then RBI projects inflation to increase by 100bps over 18-24 months;
(e) A normal monsoon may keep food inflation under check;
(f) Farm loan waivers are likely to compel a cutback on capital expenditure;
(g) High levels of stress in twin balance sheets – banks and corporations – are likely to deter new investment; and
(h) The international commodity price outlook is fairly stable.
FOREX Reserves: US$ 392.9 Billion
Foreign Portfolio Investment: US$ 15.2 Billion ( Debt+Equity )
FPI remain bullish on the outlook for the Indian Economy.
Surplus Liquidity: There is surplus liquidity in the system which is exacerbated by the budgetary spending of Government.RBI seems to be actively monitoring the situation and actively managing the excess liquidity as is stated in the policy statement:"Surplus Liquidity of Rs. 1 trillion was absorbed through issuance of treasury bills (TBs) under the Market Stabilisation Scheme( MSS), and Rs. 1.3 trillion through Cash Management Bills (CMBs) so far this fiscal year".
Export-Import:
The export growth subdued as the value of commodities exported either slowed or declined.
Import growth on the other hand remained high due to two main reasons: Surge in Oil Imports, and stockpiling of Gold imports ahead of GST implementation.
The rates as of now are:
Repo Rate: 6.0%
Reverse Repo Rate: 5.75%
Marginal Standing Facility Rate: 6.25%
Bank Rate: 6.25%
Inflation targeting, as always, played a major role in this decision as the policy decision seemed to be in line with the objective of achieving inflation target of 4 per cent within a band of +/- 2 per cent, while supporting growth.
The inflation projections of RBI are given in the chart below:
Inflation is set to be affected by the following factors and their interactions:
(a) The impact on the CPI of the implementation of house rent allowances (HRA) under the 7th central pay commission (CPC);
(b) The impact of the price revisions withheld ahead of the GST ;
(c) Implementation of farm loan waivers by States may result in possible fiscal slippages and undermine the quality of public spending and affect inflation;
(d) If States implement the allowances and salaries similar to Central, then RBI projects inflation to increase by 100bps over 18-24 months;
(e) A normal monsoon may keep food inflation under check;
(f) Farm loan waivers are likely to compel a cutback on capital expenditure;
(g) High levels of stress in twin balance sheets – banks and corporations – are likely to deter new investment; and
(h) The international commodity price outlook is fairly stable.
FOREX Reserves: US$ 392.9 Billion
Foreign Portfolio Investment: US$ 15.2 Billion ( Debt+Equity )
FPI remain bullish on the outlook for the Indian Economy.
Surplus Liquidity: There is surplus liquidity in the system which is exacerbated by the budgetary spending of Government.RBI seems to be actively monitoring the situation and actively managing the excess liquidity as is stated in the policy statement:"Surplus Liquidity of Rs. 1 trillion was absorbed through issuance of treasury bills (TBs) under the Market Stabilisation Scheme( MSS), and Rs. 1.3 trillion through Cash Management Bills (CMBs) so far this fiscal year".
Export-Import:
The export growth subdued as the value of commodities exported either slowed or declined.
Import growth on the other hand remained high due to two main reasons: Surge in Oil Imports, and stockpiling of Gold imports ahead of GST implementation.
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