The Monetary Policy Committee (MPC) held its first bi-monthly policy statement meeting today. The meeting discussed various current and impending macroeconomics situations. The committee decided to reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 6.0 per cent from 6.25 per cent with immediate effect.
The reverse repo rate was also tweaked to 5.75 per cent under the LAF. The marginal standing facility (MSF) and the bank rate was changed to 6.25 per cent.
These decisions are in sync with the goal of medium-term target consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.
Going back to the last MPC, the global economic activity since then has slowed down. A lot of emerging market economies have born a brunt of this phenomenon. Countries like China, Brazil, Russia, South Africa, etc have been affected.
Crude oil prices have risen because of production cuts by OPEC and Russia as well as disruption in supplies due to US sanctions on exports from Venezuela.
Gold prices slipped on expectations of positive outcomes of the China-US trade deal. Inflation continued to remain low in major AEs and many key EMEs due to slowing global growth and stable or falling commodity prices.
The domestic economy has been issues on the global front. Domestic economy can only flourish it there is a surge of private investors. It has been observed that private investments have become stagnant.
Speaking of the rate cut, Dr. Pami Dua, Dr. Ravindra H. Dholakia, Dr. Michael Debabrata Patra and Shri Shaktikanta Das voted in favour of the decision to reduce the policy repo rate by 25 basis points. Dr. Chetan Ghate and Dr. Viral V. Acharya voted to keep the policy rate unchanged.
In the previous bi-monthly policy resolution, CPI inflation was projected at 2.8 per cent for Q4:2018-19, 3.2-3.4 per cent for H1:2019-20 and 3.9 per cent for Q3:2019-20, with risks broadly balanced around the central trajectory. Actual inflation outcomes averaged 2.3 per cent in January-February.
The minutes of the MPC’s meeting shall be published by April 18, 2019. 28 while next meeting is scheduled during June 3, 4 and 6, 2019.
