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August 09, 2016

RBI's Third bi-monthly Monetary Policy Review 2016 Highlights

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The Reserve Bank of India's (RBI) governor Raghu Ram Rajan has kept the Repo Rate unchanged at a five-year low of 6.5% in RBI's 3rd bi-monthly monetary policy review, which was announced today (9th August 2016). This is the outgoing Governor Raghuram Rajan's last monetary policy review meeting . The central bank has cut the repo rate by 150 basis points since January 2015. It further maintained the reverse repo rate at 6%, and the cash reserve ratio at 4%. Here are the highlights of RBI’s monetary policy review and Rajan’s press conference today (9th August 9, 2016)

RBI 3rd bi-monthly Monetary Policy Review Highlights 2016

  • Cash reserve ratio or CRR unchanged at 4%
  • Repo rate unchanged at 6.50 per cent, Reverse Repo at 6% 
  • Keeps marginal standing facility (MSF) rate at 7 per cent
  • Easy liquidity conditions are prompting banks to transit policy rates through their MCLR
  • Banks have passed on rate cut benefit only modestly
  • Comfortable with NPAs recognition by banks
  • External demand likely to remain sluggish
  • KYC norms simplified. FAQ on KYC norms on RBI website for easy reference
  • FCNR(B) redemptions not to disrupt liquidity in market
  • Forex reserves at USD 365.7 billion on August 5
  • FY17 GDP growth forecast maintained at 7.6 per cent
  • Inflation target remains 5% for January 2017; upside risk
  • Marginal Cost Lending Rate framework for interest rate to be modified
  • Monetary policy stance remains ‘accommodative’
  • Normal monsoon, 7th Pay Commission award to boost growth
  • Passage of GST Bill augurs well for consensus on economic reforms
  • Premature to talk about inflationary impact of GST
  • Rate transmission by banks likely if credit demand picks up
  • Strong improvement in sowing. Good monsoon augurs well for food inflation
  • Timely implementation of GST will be a challenge. GST will help raise returns on investment across economy. GST implementation may not necessarily lead to inflation
  • Fourth bi—monthly monetary policy on October 4.
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