The Reserve Bank of India (RBI) on 8 February 2017 released the Sixth Bi-monthly Monetary Policy Statement 2016-17. It is the first policy statement post-Union Budget 2017-18.
The key announcement under the policy was that the policy Repo Rate under the Liquidity Adjustment Facility (LAF) was kept unchanged at 6.25 percent. This decision was taken on the basis of an assessment of the current and evolving macroeconomic situation.
Consequently, all the key monetary policy rates remain the same.
• Reverse Repo Rate: The Reverse Repo Rate under the LAF remains unchanged at 5.75 percent.
• Marginal standing facility (MSF) Rate: The MSF rate was also kept unchanged at 6.75 percent.
• Bank Rate: The Bank Rate also stands at 6.75 percent.
Highlights of 6th Bi-monthly Monetary Policy Statement 2017-18
Assessment of the Indian economy
• The advance estimates of the Central Statistics Office (CSO) released in January 2017 placed India’s real Gross Value Addition (GVA) growth at 7.0 per cent for 2017-18.
• Agriculture and allied activities posted a strong pick-up, benefiting from the normal south-west monsoon, robust expansion in rabi acreage and favourable base effects.
• In contrast, the industrial sector experienced a sharp deceleration, mainly due to a slowdown in manufacturing and in mining and quarrying.
• High frequency indicators point to subdued activity in the services sector, particularly automobile sales across all segments, domestic air cargo, railway freight traffic and cement production.
• Marking the fifth consecutive month of softening, retail inflation measured by the headline consumer price index (CPI) turned down sharper than expected in December 2016.
• Excluding food and fuel, inflation has been unyielding at 4.9 per cent since September 2016.
• Export growth remained in the positive zone for the fourth month in succession in December 2016.
• Imports other than petroleum oil and lubricants (POL) came out of the spike in November 2016 and moderated in December 2016.
• In contrast, there was an increase of over 10 per cent in POL imports, in part reflecting the rise in international crude oil prices.
Outlook for Indian economy
• Prices of pulses are likely to remain soft with comfortable supply conditions, while vegetable prices may potentially rebound as the effects of demonetisation wear off.
• Headline CPI inflation in Q4 of 2016-17 is likely to be below the 5 per cent.
• The focus of the Union budget on growth revival without compromising on fiscal prudence should bode well for limiting upside risks to inflation.
• GVA growth for 2016-17 is projected at 6.9 per cent with risks evenly balanced around it.
• Growth is expected to recover sharply in 2017-18 on account of several factors like rise in demand in view of remonetisation.
• The emphasis in the Union Budget 2017-18 on stepping up capital expenditure and boosting the infrastructure in rural areas should contribute to growth.
• Accordingly, GVA growth for 2017-18 is projected at 7.4 per cent.
What: Released by RBI
When: 8 February 2017
DISCLAIMER: JPL and its affiliates shall have no liability for any views, thoughts and comments expressed on this article.