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RBI Monetary Policy Review- Key Rates Not Touched

... Editorial Team

The RBI has kept key policy rates untouched and have emphasized that further rounds of easing will depend on expenditure control and structural reforms in the coming Budget by the Govt. RBI, in its sixth bi-monthly monetary policy review, kept the repo rate (the rate at which the central bank infuses liquidity into the system) unchanged at 6.75 per cent and the  cash reserve ratio (CRR)  at 4 per cent.

The RBI policy statement further stated that India was being viewed "as a beacon of stability because of the steady disinflation, a modest current account deficit and commitment to fiscal rectitude". RBI also expects that the Seventh Pay Commission recommendations will have an impact on inflation in the next one or two years.

"Structural reforms in the forthcoming Union Budget that boost growth while controlling spending will create more space for monetary policy to support growth, while also ensuring that inflation remains on the projected path of 5 per cent by the end of 2016-17," the central bank added.

Retail inflation as measured by the Consumer Price Index was 5.61 per cent in December, lower than the RBI's expectation of 6 per cent by January 2016. However, the index of industrial production (IIP) shrunk to 3.2 per cent in November, raising expectations that the RBI would, sooner or later, have to ease its policy rate.

The RBI expected Gross Value Added (GVA) growth, the new methodology of calculating economic progression, at 7.4 per cent in 2015-16 and 7.6 per cent in 2016-17.

Key Highlights:

  • Repo rate unchanged at 6.75 per cent
  • Cash reserve ratio or CRR unchanged at 4 per cent
  • Marginal standing facility rate and Bank Rate at 7.75 per cent
  • Expects FY17 inflation at around 5 per cent
  • Pegs FY16 growth at 7.4 pc; FY17’s at 7.6 pc;
  • RBI to create a special ecosystem for startup funding

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