In the sixth bi-monthly monetary policy statement announced on Thursday (dated 06.02.2020), MPC decided to keep the policy REPO rate under the liquidity adjustment facility (LAF) unchanged at 5.15 percent. The MPC also decided to continue with the accommodative stance as long as it is necessary to revive growth while ensuring that inflation remains within the target. These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 percent within a band of +/- 2 percent while supporting growth.
The present key policy rates are as under.
CRR (Cash Reserve Ratio) | 4.00%* |
SLR (Statutory Liquidity Ratio) (effective from Jan 2020 | 18.25 %* |
Repo Rate | 5.15% |
Reverse Repo Rate | 4.90% |
MSF Rate (Marginal Standing Facility Rate) | 5.40% |
Bank Rate | 5.40% |
A brief assessment of the domestic economy:
The MPC notes that inflation has surged above the upper tolerance band around the target in December 2019, primarily on the back of the unusual spike in onion prices. Over the coming weeks and months, onion prices are likely to ebb as supply conditions improve. The salutary effects on headline inflation are, however, likely to be tempered by hardening of prices of other food items, notably those of pulses and proteins.
Moving on to the domestic economy, the statement says “the first advance estimates (FAE) released by the National Statistical Office (NSO) on January 7, 2020, placed India’s real gross domestic product (GDP) growth for 2019-20 at 5.0 percent. In its January 31 release, the NSO revised real GDP growth for 2018-19 to 6.1 percent from 6.8 percent given in the provisional estimates of May 2019. On the supply side, growth of real gross value added (GVA) is estimated at 4.9 percent in 2019-20 as compared with 6.0 percent in 2018-19”.
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