Second Bi- Monthly Monetary Policy of RBI (2017-18): Highlights

Introduction

  • RBI released its second Bi-Monthly Monetary policy for the year 2017-18. The second bi-monthly policy has been released on the assessment of Monetary Policy committee(MPC) led by RBI governor Urjit Patel.
  • The MPC decided to keep the policy repo rate unchanged at 6.25%
  • Similarly, the Reverse Repo Rate remains unchanged at 6.0%, Cash Reserve Ratio at 4.00%, Marginal standard facility and Bank rate at 6.50%.
  • The Statutory Liquidity Ratio (SLR) has been reduced from 20.5 per cent of NDTL to 20 per cent. 

Key Points of the Policy 

  • Repo rates, Reverse Repo Rates and Cash Reserve Ratio have been kept unchanged at 6.25%, 6.00% and 4.00% respectively.
  • Marginal standard facility and Bank rate have been kept unchanged at 6.50%.
  • The Statutory Liquidity Ratio (SLR) has been reduced to 20 per cent.
  • Financial, political and global risks materializing in the form of imported inflation. Such as rising rural wages, robust consumption demand, and implementation of the 7th Pay Commission recommendations by state governments identified as upside inflation risk.
  • As per RBI, implementation of GST hasn’t any material impact on inflation.
  • RBI work with Government to address stress in bank balance sheet also resolving this stress.
  • With the announcement of large firm loan waivers RBI warns of risk of fiscal slippages which can inflationary spill overs.
  • RBI has lowered the projection of economic growth to 7.3% for the financial year 2017-18.
  • The next meeting on Monetary Policy Committee will be held on 1st and 2nd August 2017.

Common terms of Policy rates are:

  • Repo rate: The rate at which RBI lends money to commercial banks for meeting the short term deficits.
  • Reverse Repo rate: It is the rate at which RBI borrows money from commercial banks.
  • Cash Reserve ratio: The amount funds that banks have to keep with RBI. RBI uses it to drain out excessive money from the banks.
  • Statutory Liquidity Ratio: It is the amount which a commercial bank is required to maintain in the form of cash, gold or governments securities.
  • Marginal Standing facility: It is the rate at which scheduled banks could borrow funds  overnight from RBI. MSF rate is 1%higher than repo rate.

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