RBI’s Bi Monthly Policy for Investors and Borrowers, Every year Reserve Bank of India releases six bi-monthly policy statements. The purpose of these statements is to review and adjust monetary and liquidity measures every two months. This help the central bank keep inflation under control and steer economy toward projected growth. The central bank observed the decline in borrowing interest rates and direct benefits reaped by customers. RBI in its monetary policy review introduced Marginal Cost Lending Rate (MCLR) of funds to advance the policy diffusion in the economy. This was done in conjunction to borrowing rate cuts by the Government. now check more details about “RBI’s Bi Monthly Policy for Investors and Borrowers” from below…..
RBI’s Bi Monthly Policy for Investors and Borrowers
Key takeaway from the first bi monthly policy review:
RBI in its latest policy statement on 5th April 2016 decided to:
- Decrease the repo rate under liquidity adjustment facility(LAF) by 25 basis points to 6.50 per cent;
- Reduce the minimum daily maintenance of cash reserve ratio (CRR) by banks with RBI from 95 per cent to 90 per cent;
- Keep the CRR unchanged at 4 percent of net demand and time liabilities (NDTL) while reduced the marginal standing facility (MSF) rate by 75 basis point.
- Increase the Reverse Repo rate by 25 basis points to 6 per cent, the MSF rate and the bank rate which is pegged to MSF rate stood at 7 per cent.
RBI’s decision to slash interest rates will enable banks to consequently reduce their deposit rates and further credit to borrowers at cheaper rates.
In its policy review the central bank took the surge of liquidity in the system with the implementation of 7th Pay Commission and OROP scheme into consideration. The central bank expect the 7th Pay Commission will increase CPI inflation by 1.5 percent as it increase the buying power of households which in turn create more demand for product which leads to higher prices. However, for now the central bank expect the CPI inflation to be around 5 per cent with minimal quarter on quarter variations, the CPI dropped drastically in February after rising subsequently for six months this was due to more than expected decline in prices of vegetables, pulses, cereals. The central bank also pegged growth for this fiscal year to 7.6 per cent.
The central bank strongly believe that the monetary policy will acclimatize to economic growth. However, the only uncertain factor is monsoon which is expected to be normal this year. After two subsequent years of scarce monsoon, a normal monsoon this year would boost the supply and help strengthen the rural demand and expand the supply of farm products which might also inspire inflation.
With an improved perception about world and domestic economic condition, central bank’s Consumer Confidence survey of March 2016 show improvement in consumer sentiments.
The purchasing managers’ index (PMI) in March 2016 continued the progressive mode due to new orders and exports. RBI’s industrial outlook survey believe business in Q1 of 2016-17 to be positive.
However, CPI index is under pressure due to increase in cost of education, personal care, transport and communication and housing has put pressure on consumer price inflation index. The implementation of 7th Pay Commission and one-rank-one pension (OROP) scheme will further put pressure on the CPI index which might lead to moderation in monetary policy.
As for now the central bank wishes to curb inflation and increase the borrowing pattern by lowering borrowing rates. The central bank also has concrete plans for Banking Structure, Financial Markets, and Non-Banking financial sector. The effect of these plans will only surface by the end of 2nd quarter. The first bimonthly policy statement for the current 2016-17 fiscal year has rested assurance in economy and its growth. The next bi-monthly monetary policy statement will be announced on June 7, 2016.
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