RBI 4th Bi-Monthly Policy Review 2016-17 | Repo Rate Cut by 25 bps

RBI 4th Bi-Monthly Policy Review

 

 

Hello, Readers !!

 

 

After RBI’s 3rd Bi-Monthly Policy, here comes the awaited Fourth Bi-monthly Policy Review 2016-17.

 

The Reserve Bank of India (RBI) has released its 4th Bi-Monthly Policy Review. This was the first bi-monthly review after Dr. Urjit Patel has taken charge as RBI Governor from Dr. Raghuram Rajan.

 

 

Monetary policy is the process with the help of which monetary authority of a country (central bank) controls the supply of money in the economy.

 

In India, the central monetary authority is the Reserve Bank of India (RBI) that maintains the price stability in the economy of the country.

 

It could be executed by its control over interest rates in order to maintain price stability and achieve high economic growth.

 

As defined by RBI, there are some other major objectives of the monetary policy of India, there are: -

 

1. Price Stability                                             2. Controlled Expansion of Bank Credit

3. Promotion of Fixed Investment                4. Restriction of Inventories and stocks

5. To Promote Efficiency                               6. Reducing the Rigidity

 

 

How Dr. Patel made the final decision on the Monetary Policies?

Monetary Policy Committee

Dr. Patel has made the decisions regarding the policy after a discussion with the other members of Monetary Policy Committee (MPC).

 

The committee was a combination of six members:

 

 

1. Chetan Ghate (Government-appointed Economist)

 

2. Pami Dua (Government-appointed Economist)

 

3. RH Dholakia (Government-appointed Economist)

 

4. Gandhi (Deputy Governor)

 

5. Michael Patra (Executive Director of RBI)

 

6. Urjit Patel (RBI Governor)

 

 

The discussion went quite friendly and it added value and dispersion of opinions.

 

The Committee held two meetings. First one on 3rd October 2016 and the second one was held on 4th October 2016.

 

The decision was made after looking onto the important economic areas. They expected a strong improvement in future growth with supply management measures that will improve the food inflation outlook.

 

Some measures were adopted by the government to control food inflation pressures so that the momentum of the food inflation could be balanced.

 

In the prior policy statement that is the 3rd bi-monthly policy review, the policy actions were shown. These policy actions have got space in the current policy statement by Dr. Urjit Patel. He also expected a good transmission of policy rates.

 

The committee also took into consideration the future cost push pressures and also the award on house rent allowances & increase in minimum wages by 7th pay commission.

 

Mr. Patel said that with the agriculture growth lifted by normal monsoon and the rural demand, the growth can be seen very soon.

 

 

After the final decision, all the members decided to cut the key policy rate. The motive was to achieve a midterm Inflation target of 4% within a band of plus or minus 2%.

 

See the final policy rates in the table given below:

 

Current Policy Rates

 

 

Highlights of the 4th Bi-Monthly Policy Review 2016-17

 

Above we have discussed the complete process and decision by the Monetary Policy Committee. Now let’s have a look onto the important highlights to be kept in mind with help of the following points:

 

 

Uniqueness in the fourth bi-monthly policy

 

It was Dr. Urjit Patel’s first bi-monthly policy review.

 

India’s first collective interest rate decision was made by the six-member MPC (Monetary Policy Committee).

 

All the members were in favour of the Repo Rate Cut.

 

 

Important decisions made by the committee

 

Repo rate cut by 0.25% to 6.25%.

 

Reverse repo rate cut to 5.75%.

 

Cash reserve ratio unchanged to 4%

 

 

Points on which attention paid by the committee

 

As small savings rate has been lowered, banks should cut the lending rates.

 

Allow start-ups to raise the External Commercial Borrowing (ECB) up to $3 million annually.

 

 

Important indicators

 

Foreign exchange rose to an all-time high of $372 billion by September.

 

Govt. has announced measures to cool food inflation.

 

 

Forecasts made by the committee

 

Growth will be seen at 7.6%.

 

Normal monsoon to quicken growth momentum.

 

Inflation target remains 5% by March 2017.

 

Research sees inflation at 5.3% in Jan-Mar 2017.

 

Growth up to 7.9% next year.

 

Pay commission to activate price pressure.

 

Uncertainty around U.S elections, crude rates and global demand.

 

 

Next monetary policy schedule

 

5th Bi-monthly review => 6th December 2016

 

6th Bi-monthly review => 7th February 2017

 

 

 

 

Read more about the banking industry from Out of the Box section.

 

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One thought on “RBI 4th Bi-Monthly Policy Review 2016-17 | Repo Rate Cut by 25 bps

  1. sindhu

    This is very useful.

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