The Reserve Bank of India (RBI) on June 6, 2018 released its Second Bi-monthly Monetary Policy Statement 2018-19.
After assessing the current and evolving macroeconomic situation in the economy, the six members Monetary Policy Committee (MPC) decided to:
• Increase the policy Repo Rate under the Liquidity Adjustment Facility (LAF) by 25 basis points to 6.25 percent.
• The Reverse Repo Rate under the LAF stands adjusted to 6.0 percent.
• The Marginal Standing Facility (MSF) rate and the Bank Rate stand at 6.5 percent.
The decision of the MPC was consistent with the monetary policy in consonance with the objective of achieving the medium-term target for Consumer Price Index (CPI) inflation of 4 percent within a band of +/- 2 per cent.
First time hike in key policy rates in more than four years during the NDA rule
This was the first hike in the key policy rates by the Reserve Bank of India in over four years during the rule of Narendra Modi’s government.
Earlier, in four previous policy reviews, the Reserve Bank of India's (RBI) six-member Monetary Policy Committee (MPC) had left the Repo Rate unchanged at 6 percent.
Key Highlights of the Second Bi-monthly Monetary Policy Statement 2018-19
• The RBI retained GDP growth for 2018-19 at 7.4 percent, the same as that of the First Bi-monthly Monetary Policy Statement in April. Growth is projected in the range of 7.5-7.6 percent in April-September and 7.3-7.4 percent in October-March.
• The committee revised the retail inflation estimate to 4.8-4.9 percent for the first half of 2018-19 and 4.7 percent in the second half.
• The statement mentioned various regulatory initiatives undertaken to increase activity and participation in financial markets, such as, strengthening of regulations to prevent abusive market practices and development of a fair practice code (FPC) by the Fixed Income Money Market and Derivatives Association of India (FIMMDA).
• The Urban Co-Operative Banks can now covert into Small Finance Banks after meeting the prescribed criteria. The details of the scheme will be announced separately by the RBI.
• The committee announced to set up a Public Credit Registry, an information repository that has all loan information of individuals and corporate borrowers.
• RBI has also allowed all banks to spread their mark-to-market losses on investments in ‘Available for Sale’ and ‘Held for trading’ for the April-June quarter of 2018, equally over four quarters.
• RBI also announced to ease the transition of MSMEs to the formalised sector post their registration under the GST.
• Core Investment Companies registered with the RBI as NBFCs can now act as sponsors to InvIT issuances and can consider their holdings of InvIT units as sponsors.
• Considering the level of non-performing assets (NPAs) for the ticket size of up to Rs 2 lakh as high, RBI asked banks to strengthen their screening and follow up in respect of lending to this segment in particular.