Must know concept for RBI Grade B : First Monetary Policy Review

Dear Aspirants, 

Today we will be discussing the first monetary policy review released by Monetary Policy Committee (MPC). MPC which is made up of 6 members is responsible for the bi-monthly review. Give below are the key highlights of the policy and changes if any introduced by the committee:-

First Monetary Policy Review

The Monetary Policy Committee (MPC) decided to:

• Repo rate under the liquidity adjustment facility (LAF) unchanged at 6.0 percent.
• Reverse repo rate under the LAF remains at 5.75 percent
• Marginal standing facility (MSF) rate – 6.25 percent
• Bank Rate - 6.25 percent.
• The medium-term target for consumer price index (CPI) inflation of 4 percent within a band of +/- 2 percent.
• All 6 members of the MPC were present - Dr. Chetan Ghate, Dr. Pami Dua, Dr. Ravindra H. Dholakia, Dr. Viral V. Acharya Dr. Urjit R. Patel, Dr. Michael Debabrata Patra.
• The next meeting of the MPC is scheduled on June 5 and 6, 2018. 

Assessment

• The global economic activity has gathered further momentum since Feb 2018, both in advanced and emerging market economies, though financial market volatility and potential trade wars pose a threat to the outlook.
• Among advanced economies (AEs)
  • US economy – Has shown better results as compared to 2017 the unemployment rate remains low with hiring around multi-month highs.
  • Euro Area - Economic activity remained buoyant, consumer spending and manufacturing activity have slowed down due to the strengthening of the euro, the decline in unemployment rate continued to support the strength of the economy.
  • Japanese economy – In comparison to2017, 2018 points to a slower start to the year with weak machinery orders and an easing manufacturing Purchasing Manager’s Index (PMI) in February-March.
• Among emerging economies (EMEs)
  • Chinese economy - Started 2018 on a strong note as industrial production and retail sales have registered a strong increase.
  • Brazil economic – Economic activities in Brazil have gained momentum, driven by higher commodity prices.
  • Russian economy – Recovery in progress; industrial production expanded, while exports grew at a robust pace.
  • South Africa – Improvement in leading indicators, viz., the manufacturing PMI and business confidence.
• Financial markets turned volatile in February-March, triggered by uncertainty regarding the pace of normalization of US monetary policy, and concerns surrounding global trade.
• Central Statistics Office (CSO) released its second advance estimates for 2017-18 on February 28, revising India’s real gross domestic product (GDP) growth marginally upward to 6.6 percent from 6.5 percent in the first advance estimates released on January 5.
• GDP growth in 2017-18 at 6.6 percent was lower than 7.1 percent in 2016-17.
• Goods and services tax (GST) implementation had an adverse, even if transient, effect on urban consumption through loss of output and employment in the labour-intensive Unorganised sector.
• Government expenditure provided sustained support to aggregate demand, with a pick-up in pace in the second half.
• Strong growth in domestic air passenger traffic and foreign tourist arrivals.
• The rise in sales of passenger vehicles and a strong upturn in the production of consumer durables.
• The growth in sales of two-wheelers and tractors reflects buoyant rural consumption.
• Capital goods production registered a 19-month high growth in January 2018.
• Housing loans extended by banks have increased significantly, which is a positive for residential investment.
• External demand remains a weak link; export growth has also weakened.
• The Kharif foodgrains production for 2017-18 has been revised upward by 2.8 percent.
• Total food grains production up by 0.9 percent for 2017-18 and is estimated at 277.5 million tonnes.
• The manufacturing PMI remained in an expansionary mode.
• Retail inflation, measured by the year-on-year change in the CPI, fell from a high of 5.1 percent in January to 4.4 percent in February due to a decline in inflation in food and fuel.
• The headline inflation for February was at 4.1 percent.
• CPI inflation excluding food and fuel remained unchanged at 5.2 percent.
• India’s foreign exchange reserves were at US$ 424.4 billion on March 30, 2018.

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Source - RBI Website