RBI releases Third Bi-monthly Monetary Policy Statement 2016-17

The Reserve Bank of India (RBI) on 9 August 2016 released the Third Bi-Monthly Monetary Policy Statement 2016-17.One of the key announcements under the policy was that the RBI Governor Raghuram G Rajan kept the Repo Rate under the Liquidity Adjustment Facility (LAF) unchanged at 6.5 percent. Based on the assessment of the current and evolving macroeconomic situation, the following changes were

announced in key policy rates:

• Repo Rate: The policy Repo Rate under the Liquidity Adjustment Facility (LAF) was kept unchanged at 6.5 percent.

• Reverse Repo Rate: The reverse repo rate under the LAF will remain unchanged at 6.0 percent.

• Cash Reserve Ratio (CRR): The Cash Reserve Ratio (CRR) of scheduled banks was also kept unchanged at 4.0 percent of Net Demand and Time Liabilities (NDTL).

• Marginal standing facility (MSF) Rate: The MSF rate was fixed at 7.0 percent.

• Bank Rate: The Bank Rate also stands at 7.0 percent.

Assessment of Economy

• Among emerging market economies, activity remains varied. GDP growth stabilised in China in Q2 and manufacturing activity was weak in July due to adverse weather and subdued export demand. 

• Recessionary conditions are gradually diminishing in Brazil and Russia.

• World trade remains sluggish in the first half of 2016. International financial markets did not anticipate the Brexit vote and equities plunged worldwide and currency volatility increased.

• On the domestic front, more than 80 percent of the country is receiving normal to excess precipitation. Kharif sowing strengthened after a lacklustre start, particularly with respect to pulses. 

• Barring cotton, jute and mesta, sowing of all crops is currently above the 2015 acreage. 

• Industrial production rose at 3 percent in the current financial year. In fact, capital goods production excluding insulated rubber cables expanded by 8 percent. 

• Retail inflation measured by the headline Consumer Price Index rose to a 22-month high in June 2016. The rise was mainly driven by food, with vegetable. Sugar prices also firmed up.

• Fuel inflation remained subdued due to sustained deflation in prices of LPG. Excluding food and fuel, inflation eased across major sub-groups. 

• In the external sector, merchandise export growth moved into positive territory in June. This upturn was reasonably widespread covering chemicals, marine products, handicraft, plastic, rice, electronic and engineering goods.

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