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Sixth Bi-monthly Monetary Policy Statement, 2017-18(February 7, 2018)

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Sixth Bi-monthly Monetary Policy Statement, 2017-18

The Monetary Policy Committee (MPC) of Reserve Bank of India (RBI) on Feb 07  has decided to maintain status quo and keep its key interest rate, the repo rate, unchanged at 6 per cent in its sixth and last bi-monthly policy review of the fiscal year 2017-18. This is consecutive third time in the row, MPC keep its key interest rate unchenged. It had last cut rates by 25 bps six months earlier in its August review. The pause was on expected lines as market consensus had predicted a pause in its cutting cycle.

The six member monetary policy committee voted on the basis of a majority for a pause. Dr. Chetan Ghate, Dr. Pami Dua, Dr. Ravindra H. Dholakia, Dr. Viral V. Acharya and Dr. Urjit R. Patel voted in favour of the monetary policy decision. Dr. Michael Debabrata Patra voted for an increase in the policy rate of 25 basis points.

The decision comes after the consumer price index (CPI) inflation hit a 17-month high of 5.21 per cent in December. At its review meeting, the RBI increased its inflation forecast for Q4 to 5.1 per cent, compared to 4.3-4.7 per cent for the second half.

Gross Value Added (GVA) growth for 2017-18 is projected at 6.6 per cent and for 2018-19 it is projected at 7.2 per cent overall – in the range of 7.3-7.4 per cent in H1 and 7.1-7.2 per cent in H2 – with risks evenly balanced.

On the domestic front, the real gross value added (GVA) growth as per the first advance estimates (FAE) released by the Central Statistics Office (CSO) is estimated to decelerate to 6.1 per cent in 2017-18 from 7.1 per cent in 2016-17 due mainly to slowdown in agriculture and allied activities, mining and quarrying, manufacturing, and public administration and defence (PADO) services. 

India’s foreign exchange reserves were at US$ 421.9 billion on February 2, 2018.

The next meeting of the MPC is scheduled on April 4 and 5, 2018.

Monetary and Liquidity Measures

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

  • keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.0 per cent.

Consequently, the reverse repo rate under the LAF remains at 5.75 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 6.25 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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