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Second Bi-monthly Monetary Policy Statement, 2018-19

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Second Bi-monthly Monetary Policy Statement, 2018-19

The Monetary Policy Committee (MPC) of Reserve Bank of India (RBI) on Jun 06 has decided to increase the key policy rate or the repo rate by 25 basis points to 6.25% as inflation outlook worsens due to a rise in crude oil prices. This is the first rate hike by the central bank in almost four and a half years. The reverse repo rate has been adjusted to 6 per cent.

Dr. Chetan Ghate, Dr. Pami Dua, Dr. Ravindra H. Dholakia, Dr. Michael Debabrata Patra, Dr. Viral V. Acharya and Dr. Urjit R. Patel voted in favour of the decision. 

The rate hike is expected to trigger a spike in bond yields, thus raising further inflation risks. This is the first time the MPC met for three days, instead of the usual two, citing certain ‘administrative exigencies’.

Consumer price-index-based inflation or retail inflation rose sharply to 4.6% in April. RBI projected CPI inflation at 4.6% in H1 and 4.7% in H2.

RBI has retained GDP growth for 2018-19 at 7.4% as projected in the April policy. GDP growth is projected in the range of 7.5-7.6% in H1 and 7.3-7.4% in H2, with risks evenly balanced.

The next meeting of the MPC is scheduled on July 31 and August 1, 2018.

Monetary and Liquidity Measures

On the basis of an assessment of the current and evolving macroeconomic situation at its meeting on Jun 06, 2018, the Monetary Policy Committee (MPC) decided to:

  • increase the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 6.25 per cent.

Consequently, the reverse repo rate under the LAF stands adjusted to 6.0 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 6.50 per cent. 

The decision of the MPC is consistent with the neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth. The main considerations underlying the decision are set out in the statement below

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