Third Bi-monthly Monetary Policy Statement, 2017-18
The Reserve Bank of India (RBI) on Aug 02 has cut the Repo rate by 25 bps to 6%. This was on expected lines as market consensus predicted a 25 bps cut. Reverse repo rate has also been cut by 0.25 per cent to 5.75 per cent.
The six member monetary policy committee voted on the basis of a majority for a cut. Dr. Chetan Ghate, Dr. Pami Dua, Dr. Viral V. Acharya and Dr. Urjit R. Patel were in favour of the monetary policy decision, while Dr. Ravindra H. Dholakia voted for a policy rate reduction of 50 basis points and Dr. Michael Debabrata Patra voted for status quo.
The cut in rates comes against the backdrop of slowing credit growth, very low inflation and low economic growth. Retail inflation has fallen to a five year low of 1.5 per cent in June and expected to remain soft for a while longer. Bank credit is growing at just a little over 6 per cent year on year.
The economy has slowed down through the past five quarters from a high of 9.1% registered in the fourth quarter of fiscal 2016 to a level of 6.1% in the fourth quarter of fiscal 2017.
The projection of real GVA growth for 2017-18 has been retained at the June 2017 projection of 7.3 per cent.
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:
- reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 6.25 per cent to 6.0 per cent with immediate effect.
Consequently, the reverse repo rate under the LAF stands adjusted to 5.75 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 6.25 per cent.
The decision of the MPC is consistent with a 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.