RBI’s bi-monthly monetary policy review of 2018-19

Context:

• Recently, the first bi-monthly monetary policy review of 2018-19 has been introduced.

Background:

4^th April, 2018:

• The Reserve Bank of India’s (RBI’s) Monetary Policy Committee (MPC) has introduced the first bi-monthly monetary policy review of 2018-19.
• Please note: Meetings of the Monetary Policy Committee are to be held at least 4 times a year.  
• This was the first Monetary Policy Committee meeting of the financial year 2018-2019.
• The second bi-monthly policy meeting in the FY19 is scheduled on 5th and 6th June, 2018 respectively.

Monetary policy:

• Process by which monetary authority of a country controls the supply of money in the economy by its control over interest rates in order to maintain price stability and achieve high economic growth.
• Please note: RBI and the government signed the Monetary Policy Framework Agreement on 20^th February, 2015.

Monetary policy committee:

• Created in
• Committee of the Reserve Bank of India.
• Headed by its Governor.

Committee Structure:

• The committee comprises six
• Three officials of the Reserve Bank of India.
• Three external members nominated by the Government of India.

Objective:

• Fixing the benchmark policy interest rate (repo rate) to contain inflation within the target level.
• Please note: The government can convey its views to the MPC from time to time.
• RBI is also mandated to furnish necessary information to the MPC to facilitate their decision making.

Salient features of RBI’s bi-monthly monetary policy review of 2018-19 are:

1. Benchmark repo rate has been kept unchanged at 6%.
2. Reverse repo rate has also been left unchanged at 5.75% and the bank rate at 25%.
3. The inflation projection to 7-5.1% in the first half of the financial year 2018-2019 and 4.4% in H2 has been revised.
4. A GDP growth of 4% in FY19 from 6.6% in FY18 has been forecasted.
5. Further, the GDP growth has been projected at 3-7.4% in H1 and 7.3-7.6% in H2 of FY19.
6. A minimum level of ‘loan component’ in fund based working capital finance for larger borrowers is being specified.
7. Concerns are raised on the global trade war and stock market volatility triggered by uncertainty regarding the pace of normalisation of US monetary policy.
8. Warnings have been circulated to all the banks and financial entities to restrain themselves dealing with virtual currencies and cut all the ties within three months.
9. Inflation in respect of liquefied petroleum gas has declined in line with international price movements.
10. Furthermore, the rate of increase in prices of firewood and chips, and dung cake has been moderated.
11. Signs of revival in investment activities with exports to getting a boost from the improvement in global demand have been cleared.
12. Establishment of a Data Sciences Lab within the RBI has been proposed.

Conclusion:

Thus, the RBI has done well to adopt a lot balanced approach in the current economic context.