We are living in the seventh largest economy in the world. This fact might not be known to everyone but it’s true. Every Indian is curious to know the changes made in the economy.
RBI (Reserve Bank of India), India’s Central Bank is the major organization entitled to take every important decision in the economic and monetary policies.
Today (7th December 2016) RBI announced the most awaited 5th Bi-Monthly Monetary Policy Review. What made this policy the most awaited is the impact of Demonetization.
RBI announces a total of six bi-monthly monetary policies in a year in the months of February, April, June, August, October, and December to decide the monetary policy rate and other instruments.
After the process of demonization, it is the first bi-monthly policy. This is the reason everybody was waiting for some surprising changes.
RBI’s Governor Dr. Urjit Patel finally surprised everyone by his decision of not making any changes to the Repo Rate. Thus the final monetary policy rates are announced as follows: -
|1.||Repo Rate||6.25% (unchanged)|
|2.||Reverse Repo Rate||5.75% (unchanged)|
|3.||CRR (Cash Reserve Ratio)||4%|
|5.||MSF (Marginal Standing Facility)||6.75%|
|6.||SLR (Statutory Liquidity Ratio)||20.75% (as per RBI official website)|
The Monetary Policy Committee (MPC) decided to keep the rates unchanged on the basis of an assessment of the current and evolving macroeconomic situation.
The decision of the MPC is consistent with an objective of achieving consumer price index (CPI) inflation at 5 per cent by Q4 of 2016-17 and the medium-term target of 4 per cent within a band of +/- 2 percent, while supporting growth.
The decision of Monetary Policy Committee (MPC) was supported by 6 six members.
The minutes of the MPC’s meeting will be published on December 21, 2016.
The next meeting of the MPC is scheduled on February 7 & 8, 2017 and its resolution will be placed on the Reserve Bank’s website on February 8, 2017.
RBI paused the imminent tightening of monetary policy in the US. This decision will definitely trigger more liquidity in the financial markets.
RBI also withdrew incremental cash reserve ratio (CRR) imposed recently on Rs. 3.24 lakh crore of deposits, from the fortnight, starting 10th December 2016.
Let’s now give a look to the most important points of the policy review by RBI Governor Dr. Urjit Patel. It will help you understand the decisions very closely.
Benchmark policy rate unchanged at 6.75%.
CRR unchanged at 4%.
GDP to grow at 7.4% in 2015-16.
The Economy in early stages of recovery.
Farm sector subdued as rabi, kharif prospect hit by monsoon.
Retail inflation at 6% by January, 5% by March 2017.
Inflation uptick for 2 months warrants vigilance.
Implementation of Pay Panel recommendations.
Early signs of recovery in pharma, electronic exports.
Sixth Bi—monthly Monetary Policy on February 7.
The policy rate meeting altogether made significance on Demonetization, the biggest ever step taken in the history of Indian economy by PM Narendra Modi that affected every aspect of the economy i.e. liquidity, growth, interest rates, inflation and forex.
This was all about the major decisions taken in the 5th bi-monthly policy.
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