The month of April is running in its initial stage. With the beginning of the new fiscal year, the Indian economy starts afresh with new policies and strategies drafted and approved by the Finance Minister. We all know the fact that from 1st April our fiscal year starts and lasts until 31st March of the next calendar year.
In this month, every year RBI’s monetary policy committee releases the first bi-monthly monetary policy statement to control the supply of money in the economy by its control over interest rates to maintain price stability and achieve high economic growth.
By following the rule, on 6th April 2017, Reserve Bank of India (also known as Central Bank) has publicized its First BI-monthly Monetary Policy Statement 2017-18.
Key Changes – Repo Rate Kept Unchanged, Reverse Repo, MSF See Revision
The big decision that was taken by Dr. Urjit Patel, RBI Governor and other members of the Monetary Policy Committee (MPC), was to maintain the existing state of affairs regarding the Repo Rate and Cash Reserve Ratio (CRR) while making some fluctuations in the Reverse Repo Rate and Marginal Standing Facility (MSF). Six members voted in favour of the monetary policy decision.
Maintained the Repo Rate at 6.25% and CRR at 4%.
Raised the Reverse Repo Rate to 6% by 25 basis points.
Reduced the MSF to 6.5% from 6.75% by cutting 25 basis points.
Finalized Key Policy Rates after 1st Bi-monthly Monetary Policy 2017-18
|S. No.||Instruments||Past Rates||Current Rates|
|1.||Repo Rate||6.25%||6.25% (Unchanged)|
|2.||Reverse Repo Rate||5.75%||6% (Raised by 25 basis points)|
|3.||Cash Reserve Ratio (CRR)||4%||4% (Unchanged)|
|4.||Bank Rate||6.75%||6.75% (Unchanged)|
|5.||Marginal Standing Facility (MSF)||6.75%||6.5% (Reduced by 25 basis points)|
|6.||Statuary Liquidity Ratio (SLR)||20.75%||20.75% (Unchanged)|
Want to know all the rates in details? Read Important Banking Terms!
Reasons Behind RBI’s Decision of Changing Reverse Repo Rate and MSF
To check excess liquidity in the system.
To move rates in a narrow range.
To control the liquidity surplus in the system.
Vital Outcomes of RBI’s First Bi-Monthly Policy Statement 2017-18
There are some important decisions from RBI that we can understand as follows: –
RBI proposed that banks will be allowed to invest in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) following an earlier proposal by SEBI.
The RBI expects to change the global crude prices to impact the consumer price inflation (CPI).
RBI also expects the El Niño event around July-August.
The surplus liquidity in the Indian banking system declined from a peak of around Rs 7-lakh crore on January 4, 2017, to an average of Rs 6-lakh crore in February and further down to Rs 4-lakh crore in March.
RBI intends to keep managing liquidity via Market Stabilization Scheme (MSS) and Open Market Operations (OMOs).
RBI is planning to strengthen the GVA growth to 7.4% in 2017-18 from 6.7% in 2016-17.
RBI agreed to the fact that international financial markets have been impacted by policy announcements in major advanced economies, geopolitical events, and country-specific factors.
RBI is planning, inflation to be in the range of 4% to 4.5% for the first half of the next fiscal year, and in the range of 4.5% to 5% in the second half.
The RBI has shifted from “accommodative” to “neutral” stance.
RBI proposed to resolve the banking sector’s non-performing assets (NPAs) quickly and recapitalization of the banking sector.
To be Noted
The minutes of the MPC’s meeting will be published on April 20, 2017.
The next meeting of the MPC is scheduled on June 5 and 6, 2017.
We have mentioned all the important points and decisions of first bi-monthly monetary policy review 2017-18 in this article. If you have any query, kindly drop them in the comment box below. Also, share this useful information with your friends.
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