RBI Policy – February 2016

RBI MONETARY POLICY UPDATE

 

RBI governor Raghu ram rajan announced the sixth bi-monthly monetary policy for this fiscal year 2015-16 today. The main highlights are:

1. The Repo rate is unchanged at 6.75 per cent. Cash reserve ratio (CRR) of scheduled banks is unchanged at 4.0 per cent.

 

 

Repo rate is the rate at which RBI lends money to banks. This will lead to no change in interest rates on all loans by banks.

 

2. Economic activity has lost momentum during Oct-Dec 2015 due to lower agricultural and industrial growth.

 

This is due to the deficiency in the north-east monsoon by 23 per cent, weak investment demand, lower production of industrial capital goods as well as stalled projects.

 

3. Retail inflation as measured by CPI (consumer price index) rose for the 5thmonth in December.

 

Household inflation expectations remain high. Target of 6 per cent inflation by January 2016 will be met. Inflation is expected to be 5 per cent by March 2017.

 

This is a forecast and it does not take into account the price increases due to the implementation of the 7th pay commission report for increase in salaries of government employees. This forecast also assumes a normal monsoon in the period July–September 2016 assumes the current crude oil prices of around US$ 30 per barrel as well as assumes the current exchange rates.  

 

Higher inflation leads to higher cost of living expenses.

4. GDP growth projection is unchanged @ 7.4% for FY 16 and @ 7.6% for FY17

– It is expected to have a normal monsoon after two years of consecutive deficient monsoons.

– Weak domestic private investment, stalled projects, excess capacity in the industry and lower exports outlook are the negative factors to carefully watch.

 

5. RBI still in “accommodative” mode, while awaiting further data on the development of CPI inflation.

Growth prospects and CPI inflation data will be considered, while deciding the future rate movements

6. Further reforms in the Union budget in February 2016 thatboost growth while controlling spending is important.               prashant.mehta@acm.co.in

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.

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