MONETARY POLICY COMMITTEE AGREES ON NO RATE CUT

Come December the RBI monetary committee will come out with its next policy details.  The MPC (Monetary Policy Committee) Panel which is vested with the task of setting the regulator’s rates, has been unanimous in its decision that the REPO rate should be kept unchanged which stayed at 6.25 per cent.

During a meeting on 6 and 7 this year, the committee expressed the view that the demonetization effect would not go for a long time and that it was indeed essential to look in to the Inflation rates.  Apart from the doubt  as to whether US Federal Reserve would be hiking its interest rate, the MPC members wanted to wait for the after effect of demonetization.  More so, MPC members also wanted the banks to take advantage of the 1.75 percentage point cut in the report rate.  RBI adds that the average reduction in the lending rate till September has been 71 basis points.

Hence RBI has decided that an additional cut may not be fruitful at this juncture.  ON Budget announcement in February, possibly there will be one more review.  Further,

a. Rate cut decision could not be taken since there is no concrete data for

November month is available.

b. There is current need for maintaining inflation rate, and the next meeting on

8th Feb 2017 should give a clear picture of the country’s economic conditions.

c. Further, the impact of withdrawal of high value notes on growth and inflation

is felt to be temporary.  Hence a focus at this point is essential on medium term and thus concentrate more on inflation target range which is 4%, an RBI note added.

Author: Admin Bankedge

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