RBI Sixth bi-monthly Monetary Policy Statement 2018-19: Key Facts

The important facts related to the RBI’s sixth bi-monthly monetary policy statement for 2018-19 is listed below:

  • RBI has relaxed the CPI or retail inflation forecasts for India in FY20.
  • Because of the low inflation forecasts, RBI has decided to trim down policy repo rate by 25 basis points, taking the overall interest rate down to 6.25% now from previous 6.50%.
  • The policy stance has also been changed from calibrated tightening to neutral.
  • RBI data suggests that the 7th Pay Commission’s HRA allowance impact on the inflation indicator has diminished.
  • The reverse repo rate under the liquidity adjustment facility now stands adjusted to 6.0 per cent.
  • The marginal standing facility (MSF) rate and the Bank Rate now stand at 6.5 per cent.

Why the Inflation Forecasts were on the lower side?

The lower inflation forecasts by the RBI are attributed to the following reasons:

  • Food inflation has continued to be on the downside with continuing deflation across several items and a significant moderation in inflation in cereals. Food commodities are experiencing excess supply conditions domestically as well as internationally. Hence, the short-term outlook for food inflation appears particularly benign, despite adverse base effects.
  • The moderation in the fuel prices was larger than anticipated. Inflation in items of rural consumption such as firewood and chips, which had remained sticky and at elevated levels, has collapsed in recent months. Electricity prices have also witnessed an unexpected moderation. This resulted in a softer outlook for the fuel group
  • The recent unusual pick-up in the prices of health and education is seen as a one-off phenomenon.

The next meeting of the MPC for the policy review is scheduled from April 2 to 4, 2019.

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