RBI's Bi-Monthly Monetary Policy Review: December 2018

Highlights of RBI's Bimonthly Policy (5th)
  • RBI publishes its bimonthly policy every two months. The recent one was published in December 2018. 
  • The Reserve Bank of India’s sixth and last bi-monthly Monetary Policy Committee meeting in FY19 has been scheduled on 5 to 7 February 2019. 

Highlights:

  • Real gross domestic product (GDP) is likely to grow at 7.4 % in 2018-19 which was 6.7 % in 2017-18. It is expected to accelerate further by 10 basis points (bps) in 2019-20 on the back of support from private consumption. 
  • According to RBI, the GDP growth slowed down to 7.1 % in the second quarter of the financial year 2018-2019 due to moderation in private consumption and a large drag from net exports. Private consumption slowed down possibly on account of moderation in rural demand, subdued growth in kharif output, depressed prices of agricultural commodities and sluggish growth in rural wages. 
  • The investment rate that is the ratio of gross fixed capital formation to GDP, is expected to improve in 2018-19 and 2019-20, with an increase in the saving rate. 
  • Real gross value added (GVA) is expected to grow by 7.2 % in 2018-19 and by 7.3 % in 2019-20, supported by activity in the industrial and services sectors. 
  • Headline consumer price index (CPI) inflation is likely to decline to 3.1 % in Q3:2018-19 and will increase thereafter. Headline inflation is expected at above 4.0 % in the first half of 2019-20. 
  • Core inflation (i.e., CPI excluding food and beverages, pan, tobacco and intoxicants, and fuel and light) is likely to remain above 5.5 % during the second half of 2018-19 before edging down to 5.4 % in Q1:2019-20. 
  • The forecast of growth in merchandise exports and merchandise imports during 2018-19 have been revised up to 10.6 % and 14.5 %, respectively, 
  • The current account deficit (CAD) is expected at 2.7 % and 2.6 % of GDP in 2018-19 and 2019-20, respectively. 
  • The Indian rupee is likely to remain around 72 per US Dollar till Q2:2019-20 
  • Kept the policy repo rate under LAF remained unchanged at 6.5% while the reverse repo rate remains at 6.25% and marginal standing facility rate and bank rate remained at 6.75%. 
  • RBI also decided to continue with stance of calibrated tightening with an objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 % within a band of +/- 2 %, while supporting growth. 
  • Dr Ravindra H Dholakia was the only member who voted to change the stance to ‘neutral’ 
  • According to RBI, in many key emerging market economies, inflation has risen, though the recent retreat in crude oil prices, tightening of policy stances by central banks and stabilising of currencies may have a salutary impact ahead. 
  • RBI injected durable liquidity amounting to Rs 360 billion in October and Rs 500 billion in November through open market purchase operations, bringing total durable liquidity injection to Rs 1.36 trillion for 2018-19. Liquidity injected under the LAF, on an average daily net basis, was Rs 560 billion in October, Rs 806 billion in November and Rs 105 billion in December (up to December 4). 

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