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RBI’s Fifth bi- monthly Monetary Policy: Important Points for Bank Exams

Dec 7, 2017 15:34 IST
    RBI’s Fifth bi- monthly Monetary Policy: Important Points for Bank Exams
    RBI’s Fifth bi- monthly Monetary Policy: Important Points for Bank Exams

    RBI’s fifth bi-monthly monetary policy for the financial year 2017-18 has released on 6th December 2017. The fourth review of monetary policy of RBI was released in the first week of October. This time the six- member monetary policy committee (MPC), headed by Governor Urjit Patel kept key interest rate unchanged. The decisions were widely predicted by top economist.

    RBI’s Key Interest Rates: Highlights of Fifth bi- monthly Monetary Policy

    • RBI maintains status – quo; keeps the short term lending rate i.e. Repo rate under the Liquidity Adjustment Facility (LAF) unchanged at 6 per cent.
    • Reverse repo rate remains unchanged at 5.75 per cent.
    • Marginal Standing Facility (MSF) remains unchanged at 6.25 per cent.
    • Bank Rate unchanged at 6.25 per cent.
    •  Real Gross value added (GVA) growth for ongoing financial year of the October stays at 6.7 per cent with risks evenly balanced.
    • The MPC remains committed to keep Consumer Price Index (CPI) inflation close to 4 per cent on durable basis.
    • Cash Reserve Ratio (CCR) remains unchanged at 4 per cent
    • Statutory Liquidity Ratio (SLR) remains unchanged at 19.5 per cent

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    RBI’s Growth prediction for Financial Year 2017-18

    • Quarter 3 Gross value added (GVA) seen at 7 per cent
    • Quarter 4 Gross value added (GVA) seen at 7.8 per cent

    What is Gross value added (GVA)?

    Gross Domestic Product (GDP) , estimated by Central Statistics Organisation (CSO) is a measure of economic activity in the country. It is total value of an annual output of goods and services produced in the country.  Two years back, Central Statistics Organisation (CSO) introduced a new method to calculate growth numbers. This new method is different in many ways from earlier method.

    “Gross value added (GVA) is defined as the value of output less the value of intermediate consumption. Value added represents the contribution of labour and capital to the production process. When the value of taxes on products (less subsidies on products) is added, the sum of value added for all resident units gives the value of gross domestic product (GDP).”

    The RBI too considers only GVA to interpret its economic projections in its monetary policy reviews.

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    RBI’s Fifth bi-monthly Monetary Policy: Highlights

    • As per the data released by central Statistical office (CSO), Inflation rose to 3.58 per cent in October as compared with 3.28 per cent earlier.
    • Experts says the decision of member monetary policy committee (MPC) to keep key interest rate unchanged aims to achieve the medium-term target for consumer price index (CPI) inflation of 4 per cent.
    • The unemployment rate down to 4.1 per cent in October. This is lowest in last 17 years.
    • Consumer Price Index (CPI) inflation in the second half  of the financial year seen 4.3-4.7 percent (above the RBI's medium-term target of 4 percent)
    • RBI said that recent increase in oil prices may have a negative impact on margins of firms and GVA growth.

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    Do you Know?

     

    Consumer Price Index (CPI) is a measure of change in retail prices of goods and services consumed by specific group of people in a given area with reference to a base year. The CPI number measures changes only in one of the factors; prices. This index is an important economic indicator and is widely considered as a barometer of inflation. It is used as a measure of inflation in around 157 countries.

    The next bi monetary policy will be released in February 2018.

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