On 7th of August 2019, RBI’s Monetary Policy Committee came up with the 3rd Bi-monthly Monetary Policy Statement 2019-20. All members of the MPC unanimously voted to reduce the policy Repo Rate and to maintain the accommodative stance of monetary policy. Owing to the benign inflation and economic slowdown (modest GDP growth rates concerns) and trade wars & geopolitical tensions, Reserve Bank of India (RBI) decided to cut key lending rates for the fourth time in a row. RBI slashed Repo Rate by 35 basis points while keeping its monetary policy stance “accommodative”. Go through this blog for RBI Monetary Policy Highlights for 3rd Bi-monthly Monetary Policy Highlights.
RBI Monetary Policy Highlights – Key Rates
|Reverse Repo Rate||5.15%|
|Marginal Standing Facility (MSF) & Bank Rate||5.65%|
|Cash Reserve Ratio||4%|
|Statutory Liquidity Ratio||18.75%|
RBI Monetary Policy Highlights – Growth Forecasts
- Monetary Policy Committee has cut India’s GDP Growth Rate to 6.9% from 7% for the year 2019-20 (FY20).
- GDP Growth Rate to be in the range of 5.8% – 6.6% for H1: 2019-20 (April to September) and 7.3% to 7.5% for H2 2019-20 (October to March)
- GDP growth for Q1: 2020-21(April to June) is projected at 7.4%.
- RBI has cited the slowdown in the Global Economic Activity, Escalating trade tensions & Protectionist foreign policies adopted by big economies, the reasons for downside risks for India’s Economy.
- It has also warned about the construction sector, the country’s largest jobs provider that construction activity has weakened in India and this would have negative effects on the employment.
RBI Monetary Policy Highlights – Inflation Projections
The above decision of the rate cut is in consonance with the objective of achieving the medium-term target for Consumer Price Index (CPI) inflation of 4% within a band of +/- 2% while supporting growth. The MPC notes that inflation is currently projected to remain within the target over a 12-month ahead horizon.
- The path of CPI Inflation is projected at 3.1% for Q2:2019-20 (July to September) and
- 3.5-3.7% for H2:2019-20 (October to March), with risks evenly balanced.
- CPI Inflation for Q1: 2020-21 (April to June) is projected at 3.6%.
- CPI Inflation excluding food and fuel fell by 50 basis points to 4.1% in May from 4.6% in April and remained unchanged in June
- Retail inflation, measured by year-on-year change in the CPI, edged up to 3.2% in June from 3.0% in April-May, driven by food inflation.
- RBI Governor said that addressing growth concerns by boosting aggregate demand, especially private investment, will be the highest priority at this juncture while remaining consistent with the inflation will be the mandate.
RBI Monetary Policy Highlights – Provision for NBFCs
- Measures will be taken to enhance the flow of credit to NBFCs.
- Banks’ exposure to each NBFC raised to 20% of bank Tier-I capital from 15%.
- Risk weight for consumer credit reduced to 100% from 125%.
RBI Monetary Policy Highlights – Priority Sector Lending Norms
Changes in priority sector lending norms
- Lending to NBFCs for Agriculture loan borrowers up to Rs 10 lakh classified as priority sector lending.
- Lending to MSMEs for Agri loan borrowers up to Rs 20 lakh classified as priority sector lending.
- Lending to housing for Agri loan borrowers up to Rs 20 lakh classified as priority sector lending.
RBI Monetary Policy Highlights – Payment Systems
Measures to boost Payment Systems
- RBI will set up a central payment fraud registry for tracking payment system frauds.
- National Electronic Funds Transfer (NEFT) services to be active 24×7 from December from the current timings of 8.00 am to 7.00 pm on all working days (including 1st, 3rd and 5th Saturdays in a month).
RBI Monetary Policy Highlights – PMI
PMI is the Purchasing Managers’ Index. The Purchasing Managers’ Index (PMI) is an indicator of economic health for the manufacturing and service sectors.
- The manufacturing PMI rose to 52.5 in July from 52.1 in June.
- The services PMI expanded to 53.8 in July from 49.6 in June.
1 Percent = 100 Basis Point (bps)
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