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You are here : IndiaNotes >> Research & Analysis >> Economy Watch >> Monetary Policy

Analysis of 5th bi-monthly monetary policy 2017-18

Asit C. Mehta | 07 Dec, 2017  | Follow Author | Add to my Favourites 
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Key Outcome:

The policy repo rate underthe liquidity adjustment facility (LAF) remains unchanged at 6.0% Consequently, reverse repo rate under the liquidity adjustment facility (LAF) and marginal standingfacility (MSF) remains unchanged at 5.75% and 6.25% respectively Cash Reserve Ratio (CRR) of schedules banks remains unchanged at 4% of net demand and time liability (N DTL)

Inflation Outlook:

RBI believes that there is an upside risk to inflation and increased its inflation projection marginally forthe year. It now expects inflation to range between 4.3-4.7% in the third as well as fourth quarters ofthe current fiscal from the earlier projection of4.2-4.6% in the second half ofthis fiscal year. However, the headline inflation outcomes have evolved broadly in line with projections. Going ahead, RBI expects momentum in inflation to be determined by the following key events:

a. Impactofhouserentallowances(HRA)incomingmonths

b. International price movement in crude oil prices

c. Acceleration in fuel &food prices.

Further, RBI believes that implementation offarm loan waivers by select states, partial roll back of excise duty and VAT in the case of petroleum products, and decrease in revenue on account of reduction in GST rates for several goods and services may result in fiscal slippage. This would also have some implications on inflation. However, M PC remains committed to keeping headline inflation close to 4% on a durable basis.

Growth Outlook:

RBI has retained the projection of GVA growth for 2017-18 at 6.7%, with risks evenly balanced. However, it noted that second quarter growth was weaker than it had anticipated. Further, RBI believes that recent increase in oil prices may have a negative impact on margins offirms and on GVA growth. Moreover, shortfall in kharif production and Rabi sowing pose downside risks to growth. On the brighter side, RBI believes that there has been some pick up in credit growth. Recapitalization of public sector banks may help improve credit flows further.

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