As expected, Monetary Policy Committee (MPC) maintained the status quo on policy rates in its 4th bi-monthly monetary policy. The MPC stated that it would wait for more data and committed to maintain the inflation close to 4% on a durable basis. However, it cut the SLR by 25 bps to 19.5% which will be effective from October 14, 2017.
Source - RBI
|Reverse Repo Rate||5.75%||5.75%|
|Marginal Standing Facility Rate||6.25%||6.25%|
|SLR||20.00%||19.50% (Applicable from Oct 14, 2017)|
- Maintained neutral stance – The MPC maintained its neutral stance with an objective to achieve the targeted CPI inflation of 4% with +/- 2% band while supporting the growth.
- Raise the inflation expectation for H2FY18 – The MPC increased expected inflation to 4.2-4.6% in H2FY18 against its previous projection of 4.0-4.5%.
- Lowered GVA growth for FY18 – The MPC has cut the real GVA growth to 6.7% from 7.3% for FY18 citing GST implementations, impact on Kharif foodgrains production as the monsoon lost momentum in July-August 2017, important period for kharif sowing, and delay in revival of investment activities due to stressed balance sheet of banks and corporates.
- Structural Reforms to boost growth – The MPC believes that the recent structural reforms will boost the growth in the medium-long term as they will improve the business environment, enhance transparency and enlarge the formal economy.
- Committed to resolving the NPAs – The MPC also stated that it will continue to resolve the stressed balanced sheet of banks which should start yielding positive results for the economy over the medium term.
In addition, RBI also stated some steps to reinvigorate the dried investment activities:
- Recapitalize the public sector banks adequately to ensure the credit growth.
- Increase the spending on infrastructure sector.
- Restart the stalled projects, particularly public sector projects.
- Enhance ease of doing business and additional simply the GST.
- Ensure time-bound faster single-window clearance of affordable housing projects and rationalize the stamp duties levied by states.
The 5 members of the MPC supported the monetary policy decision while Dr. Ravindra H. Dholakia voted for 25 basis rate cut. The next meeting of the MPC is scheduled on December 5-6, 2017.
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