RBI releases second Bi-monthly Monetary Policy Statement 2017-18

Jun 8, 2017 11:22 IST

second Bi-monthly Monetary Policy Statement 2017-18The Reserve Bank of India (RBI) on 7 June 2017 released the second Bi-monthly Monetary Policy Statement 2017-18.

After assessing the current and evolving macroeconomic situation in the country, the Monetary Policy Committee (MPC) kept the Repo Rate unchanged at 6.25 per cent.

The Reverse Repo rate was also kept unchanged at 6 per cent. The Marginal Standing Facility (MSF) Rate and the Bank Rate were fixed at 6.50 per cent.

However, the RBI has cut the Statutory Liquidity Ratio (SLR) by 50 basis points to 20 per cent. It has also cut the economic growth projection to 7.3 per cent for the current fiscal from 7.4 per cent earlier.

The RBI has also revised its target for Gross Value Added (GVA) by 10 basis points to 7.3 per cent. This came following the data released by Central Statistics Office (CSO) on GDP and GVA.

CA eBook

Key Highlights of the Policy
The inflation has fallen below 4 per cent since November 2016. However, the impending implementation of GST ( from 1 July 2017) is not expected to have any inflationary impact.

Retail inflation dropped to 2.99 per cent in April 2017 from 3.89 per cent in April 2016.

The fourth quarter GDP numbers dropped to a growth rate of 6.1 per cent as against 7 per cent in the previous quarter. Yet, overall GDP growth slowed to 6.5% in the second half as adverse effects of demonetization kicked in.

Gross Fixed Capital Formation (GFCF) was down to 2.4 per cent for 2016-17 from 6.5 per cent in 2015-16, whereas government Final Consumption Expenditure was higher at 20.8 per cent in 2016-17, compared to 3.3 per cent in 2015-16.

Agricultural and government consumption growth improved to 6 per cent and 26.4 per cent respectively in the second half of 2017-18 from 3.3 per cent and 16.5 per cent in the first half.

There is a possibility of fiscal slippages due to the farm loan waivers. The risk of fiscal slippages can entail inflationary spillages.

The headline inflation is projected in the range of 2.0-3.5 per cent in the first half of 2017-18 and 3.5-4.5 per cent in the second half.

The transitory effects of demonetisation can still be witnessed on in price formations relating to salient food items entangled with excess supply conditions such as fruits and vegetables, pulses and cereals.

The current state of the economy highlights the need to revive private investment, restore banking sector health and remove infrastructural bottlenecks.

 

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