What to read into RBI’s money policy review: 5 key takeaways
, ETMarkets.com|
Updated: Feb 07, 2018, 04.50 PM IST
The RBI decided to take a safe line in its sixth bi-monthly monetary policy review of 2017-18, as was popularly expected.
The Monetary Policy Committee (MPC) of the Reserve Bank of India kept the repo rate unchanged at 6 per cent at the conclusion of the policy meet on Wednesday. Consequently, MSF (Marginal Standing Facility) and bank rate remain on hold at 6.25 per cent. Reverse repo rate has been retained at 5.75 per cent. The MPC voted 5-1 in favour of a status quo. Here are the key takeaways:
Maintains neutral stance
Setting all speculations at rest amid a host of worries such as upward revision of fiscal deficit, surging oil prices and risk of higher inflation, the central bank maintained its neutral stance. "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," it said in its statement.
GVA growth seen at 6.6 per cent
GVA growth for 2017-18 is projected at 6.6 per cent. GVA, or Gross value added, is the measure of the value of goods and services produced in an area, industry or sector of an economy. For overall FY19, the GVA growth has been projected at 7.2 per cent based on following considerations.
Focus of Budget on rural and infra sector is seen as a welcome step
Hailing the Centre's tilt towards agriculture, farmers and infra sectors, the MPC noted that it would support rural income and investment, and in turn provide a further push to aggregate demand and economic activity. It also said the economy is on a recovery path, including early signs of a revival of investment activity. "Global demand is improving, which should help strengthen domestic investment activity," it said in a media release.
Inflation for H1FY19 seen at 5.1-5.6%
Factoring in several metrics, including surging oil prices and rise in non-oil industrial raw material prices, the CPI inflation for 2018-19 is estimated in the range of 5.1-5.6 per cent in H1 and 4.5-4.6 per cent in H2, with risks tilted to the upside, it said.
Lone dissenter
The RBI in its press release noted that Chetan Ghate, Pami Dua, Ravindra H Dholakia and Viral V Acharya, besides Governor Urjit Patel, voted in favour of the monetary policy decision. However, Michael Debabrata Patra was the lone dissenter who voted for an increase in the policy rate of 25 basis points. The minutes of the MPC's meeting will be released on February 21.
The Monetary Policy Committee (MPC) of the Reserve Bank of India kept the repo rate unchanged at 6 per cent at the conclusion of the policy meet on Wednesday. Consequently, MSF (Marginal Standing Facility) and bank rate remain on hold at 6.25 per cent. Reverse repo rate has been retained at 5.75 per cent. The MPC voted 5-1 in favour of a status quo. Here are the key takeaways:
Maintains neutral stance
Setting all speculations at rest amid a host of worries such as upward revision of fiscal deficit, surging oil prices and risk of higher inflation, the central bank maintained its neutral stance. "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," it said in its statement.
GVA growth seen at 6.6 per cent
GVA growth for 2017-18 is projected at 6.6 per cent. GVA, or Gross value added, is the measure of the value of goods and services produced in an area, industry or sector of an economy. For overall FY19, the GVA growth has been projected at 7.2 per cent based on following considerations.
- GST implementation is stabilising, which augurs well for economic activity.
- There are early signs of revival in investment activity as reflected in improving credit offtake, large resource mobilisation from the primary capital market, and improving capital goods production and imports.
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The process of recapitalisation of PSBs has got under way. Large distressed borrowers are being referenced for resolution under the IBC. This should improve credit flows further and create demand for fresh investment.
- Although export growth is expected to improve further on account of improving global demand, elevated commodity prices, especially those of oil, may act as a drag on aggregate demand.
Focus of Budget on rural and infra sector is seen as a welcome step
Hailing the Centre's tilt towards agriculture, farmers and infra sectors, the MPC noted that it would support rural income and investment, and in turn provide a further push to aggregate demand and economic activity. It also said the economy is on a recovery path, including early signs of a revival of investment activity. "Global demand is improving, which should help strengthen domestic investment activity," it said in a media release.
Inflation for H1FY19 seen at 5.1-5.6%
Factoring in several metrics, including surging oil prices and rise in non-oil industrial raw material prices, the CPI inflation for 2018-19 is estimated in the range of 5.1-5.6 per cent in H1 and 4.5-4.6 per cent in H2, with risks tilted to the upside, it said.
Lone dissenter
The RBI in its press release noted that Chetan Ghate, Pami Dua, Ravindra H Dholakia and Viral V Acharya, besides Governor Urjit Patel, voted in favour of the monetary policy decision. However, Michael Debabrata Patra was the lone dissenter who voted for an increase in the policy rate of 25 basis points. The minutes of the MPC's meeting will be released on February 21.
