What were some of the key highlights of the monetary policy announced by the RBI on October 04?
Answer
Answer
The RBI policy was announced in the backdrop of falling growth and tepid inflation. Here are the 10 major highlights.
1) The repo rate, which is the benchmark for all interest rates in the economy, has been cut by 25 basis points from 5.40% to 5.15%. This marks the fifth consecutive rate cut by the RBI starting from February 2019 and has cut rates each second month.
2) The 25 bps cut in the October policy follows a 35 bps cut in the August policy. The underlying message of the RBI remains the same that the RBI will continue to cut rates as long as growth does not pick up and inflation is in check.
3) This cut in repo rates automatically reduces the reverse repo rate to 4.90% and the marginal standing facility (MSF) and the bank rate to 5.40%. The reverse repo rate and the MSF rate are at a 25 bps spread to the report rate on either side.
4) The Monetary Policy Committee (MPC) has maintained the stance of the policy as accommodative considering the growth pressures in the economy. The RBI will continue to be “Accommodative” till growth pressures remain and inflation is under the 4% level.
5) There was a shock on the growth front as RBI revised its full year GDP estimate for the fiscal year 2019-20 to its lowest estimate hitherto at 6.1%. RBI has projected 5.3% for second quarter and close to 7% for the last two quarters.
6) RBI has reiterated that inflation was likely to remain under control under 4%. Although the government had projected lower Kharif output this year, the marginal fall in output may not impact prices. Also, the pulses buffer stock was likely to hold food prices too.
7) The policy also announced the expansion of the MFI limits. This will allow people with higher income levels to avail micro loan facilities and also banks lend higher limits of loans under the microfinance scheme.
8) The policy has also envisaged creating a fund to promote digital penetration in rural and semi urban areas. This fund will be utilized for static and mobile infrastructure to improve the usage of digital transactions in smaller towns and villages.
9) All the six members of the MPC voted to maintain the stance at Accommodative and to cut rates. While Dr. Dholakia voted to reduce the rates by 40 bps, the other five members voted to reduce the rate by 25 bps.
10) The detailed minutes of the meeting will be announced after 2 weeks on October 18 and the next policy meeting will be between December 03rd and December 05th with the policy announcement on December 05.