Highlights of RBI Sixth Bi-Monthly Policy Review 2018: Announcing the policy review, the RBI said its decision is consistent with the neutral stance of the central bank aimed at achieving its median inflation target of 4%.
Following is the text of statement issued by Ministry of Finance in response to RBI unveiling its sixth bi-monthly monetary policy statement today. Scroll down to know more.
Highlights of RBI Sixth Bi-Monthly Policy Review 2018
The Reserve Bank of India on Wednesday maintained status quo on the policy rates, but raised red flags about potential steep spike in prices, fiscal profligacy and the likely fallout of volatility in global financial markets. Before we talk about the Sixth RBI Bi-Monthly Policy review let us go through some economic terms for your better understanding.
Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds.
Reverse Repo Rate
Reverse Repo rate is the short term borrowing rate at which RBI borrows money from banks. The Reserve bank uses this tool when it wants to limit the excess money floating in the banking system.
Marginal Standing Facility (MSF) Rate
It is a special window for banks to borrow from RBI against approved government securities in an emergency situation like an acute cash shortage.
This is similar to Repo Rate but for a longer duration. This is the rate at which central bank (RBI) lends money to other banks or financial institutions.
Gross Value Added Growth
Put simply, Gross Value Added (GVA) Growth is a measure of total output and income in the economy. It provides the rupee value for the amount of goods and services produced in an economy after deducting the cost of inputs and raw materials that have gone into the production of those goods and services. It also gives sector-specific picture like what is the growth in an area, industry or sector of an economy.
Cash Reserve Ratio (CRR)
Cash Reserve Ratio is money that banks park with the RBI for free, without receiving any interest on it. The CRR, now at 4 per cent, is calculated as a percentage of each bank’s net demand and time liabilities (NDTL). NDTL refers to the aggregate savings account, current account and fixed deposit balances held by a bank.
Statutory Liquidity Ratio (SLR)
Apart from Cash Reserve Ratio (CRR), banks have to maintain a stipulated proportion of their net demand and time liabilities in the form of liquid assets like cash, gold etc. Treasury bills, dated securities issued under market borrowing programme and market stabilisation schemes (MSS), etc also form part of the SLR. Banks have to share their SLR report to the RBI every alternate Friday.
Following are the highlights of the RBI’s 6th bi-monthly monetary policy statement:
- Policy repo rate unchanged at 6.25%.
- Economic growth for FY17 lowered to 6.9%; RBI pegs it at 7.4% in 2017—18.
- Growth is expected to recover sharply in 2017—18.
- Retail inflation RBI estimates retail inflation in 5.1-5.6% range in first half of 2018-19, 4.5-4.6% in second half.
- Inflation projected in the range of 4—4.5% in the first half of 2017—18 and 4.5—5% in the second half.
- Upside risks to inflation — rise in crude oil prices, volatility in exchange rate, and fuller effect of the 7th Pay Panel.
- Global growth projected to pick up modestly in 2017.
- Global trade remains subdued due to increasing tendency towards protectionist policies.
- RBI changes policy stance from ‘accommodative’ to ’neutral’
- Monetary Policy Committee (MPC) shifts policy stance to neutral keeping in mind transitory effect of demonetisation.
- Surplus liquidity to fall with progressive remonetisation; abundant liquidity with banks may persist in early 2017—18.
- High frequency indicators point to subdued activity in services sector, automobile sales, domestic air cargo, railway freight traffic, and cement production.
- Steel consumption, port traffic, international air freight, foreign tourist arrivals weathered effect of demonetisation.
- Excluding food and fuel, inflation has been unyielding at 4.9% since September.
- Makes case for faster resolution of NPAs and hastening recapitalisation of banks for lower lending rates.
Here we conclude our article on Highlights of RBI Sixth Bi-Monthly Policy Review 2018 Examination. Stay tuned with us for more information on Government Examination.
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