RBI: Neutral over dovish: 

RBI: Neutral over dovish: 

Context:

RBI has kept the repo rate unchanged at 6%

What are the other recent declarations made by RBI?

• Reverse repo rate kept unchanged at 5.75
• Marginal standing facility (MSF) rate and the Bank Rate kept at 6.25 per cent
  Cash Reserve Ratio (CRR) kept unchanged at 4%
• Statutory liquidity ratio (SLR) requirement has been cut by 50 basis points to 19.5 per cent.
• Inflation projection has been narrowed down for the  second half of the FY18 to 4.2% to 4.6% from the earlier 4-4.5%
• Growth estimate has been reduced to 6.7% from 7.3%
  

What is the reason behind RBI’s decision to keep key policy rate unchanged?

• The Monetary Policy Committee (MPC) of Reserve Bank has decided to keep the key policy rate unchanged as it projects risks to inflation.

What is the current growth trend?

• Economic slowdown
• However, high frequency numbers are showing signs of revival, including auto-sales, PMI-manufacturing, core industries index etc.
• Growth is expected to be 6-7% in the second half of the FY18.
• However, full-year growth will still be at a three-year low

What does this growth trend imply?

• There is no urgent requirement to lower any of policy rate
• Central government has more time to observe and analyze the shifting global developments, like higher oil prices and rising interest rates, into domestic fiscal policy.
• Once GST-led uncertainties are over, the government should take measures to support growth

What steps should the government take to support growth?

• The government should put more emphasis on the recovery of non-performing assets
• Emphasis should also be put on rebuilding banks’ balance sheets

Despite recent speculations of a fiscal stimulus, the government has not taken measures. Why so?

• There is a need to strike a balance between growth and fiscal discipline.
• More time is needed to assess downside risks to growth and revenue collections.