Key Highlights of RBI’s Sixth Bi-monthly Monetary Policy Review: 2018-19
- Repo, Reverse Repo, Marginal Standing Facility (MSF) and bank rate cut by 25 bps. Repo rate has been reduced to 6.25 % and Reverse repo rate has been brought down to 6 %.
- Cash reserve Ratio (CRR) held constant at 4%.
- Inflation had fallen to 18-month low of 2.19 per cent in December and was expected to remain in the range of 3.2 - 3.4 per cent in April - September which is lower than previous RBI prediction of 3.8 - 4.2 per cent range.
- RBI expects GDP growth rate to be at 7.4 per cent in fiscal 2019-20 which is up from 7.2 per cent estimated for financial year 2018-19 by central statistical organization.
- Policy stance: The MPC took its stance back to neutral, highlighting the data dependent source of policy decision making.
- Policy Guidance: Given a rate cut today, a further cut in the April meeting has assumed a higher probability, as long as inflation trends remain benign and growth remains within a range.
- Liquidity conditions have been oscillating between mild surplus and heavy deficit. Liquidity is supported by extraordinarily heavy government spending, but remains structurally tight.
- The external sector remains a source of uncertainty on multiple fronts, including trade negotiations, global growth and the direction of central bank actions.
Comment:
- The rate cut by the RBI is expected to give a boost to the economy by providing affordable credit to small businesses and home buyers. This will further boost employment opportunities.
- Assessment of growth and inflation is quite realistic and underlines low inflation and high growth path for India for 2019-20.
