bi monthly monitary policy. raghurajan on 6th policy. reviews on this policy. RBI views and future outlook of this policy

1. BI MONTHLY
MONETARY POLICY

2. • RBI the apex institute of India which monitors and regulates
the monetary policy of the country stabilizes the price by
controlling Inflation. RBI takes into account the following
monetary policies:
1. Cash Reserve Ratio
2. Statutory Liquidity Ratio
3. Bank Rate Policy
4. Credit Ceiling
5. Repo rate and Reverse Repo rate

3. History- Bi Monthly Monetary Policy
• Until the mid-90s, RBI had only two monetary policy reviews a
year.
• After Bimal Jalan took charge as governor in 1997, he
rechristened the process as monetary policy and introduced
quarterly reviews. His successor Y V Reddy introduced a mid-
quarter review, which resulted in an announcement every 45 days.
• A panel headed by RBI deputy governor Urjit Patel had
recommended that the central bank monetary policy committee
meet every two months to review rates.
• The Reserve Bank of India shifted to a system of announcing its
policy statement bi-monthly with the first policy being
announced on April 1, 2014.

4. 5th Bi Monthly Monetary Policy
• RBI 5th Bi-Monthly Monetary Policy Highlights:
• Benchmark policy rate unchanged at 6.75%
• CRR unchanged at 4%
• GDP to grow at 7.4% in 2015-16; mild downside bias
• Economy in early stages of recovery, weakness persists
• Farm sector subdued; rabi, kharif prospect hit by monsoon
• Retail inflation at 6% by January, 5% by March 2017
• Inflation uptick for 2 months warrants vigilance
• Open to accommodative monetary policy, keeping inflation under control
• Implementation of Pay Panel recommendations to be factored in for future
policy deliberation
• Banks transmitted only 0.60 pc of 1.25 pc repo rate cut benefits to borrowers
• To shortly finalise base rate computation based on marginal cost of funds
• Clean up of bank balance sheets will create room for fresh lending
• Linking of small savings rate with market interest rates on anvil, to help in
monetary transmission
• Early signs of recovery in pharma, electronic exports
• Sixth Bi—monthly Monetary Policy on February 2

5. RBI 6th Bi-Monthly Monetary Policy
• In it’s Sixth Bi-monthly Monetary Policy Review, the Reserve
Bank of India (RBI) has left the key policy rates unchanged.
• The central bank will now focus on the government’s annual
budget statement at the end February to decide on whether to cut
interest rates further.
• The government is expected to deliver its 2016/17 budget on 29th
February 2016.

6. Raghuram Rajan on 6th Bi Monthly
Monetary Policy
• RBI Governor Raghuram Rajan left the key policy rate
unchanged but indicated at accommodative stance saying
with “inflation moving closer to the target” there would be
more room for rate cut to support growth.
• He also said that if the Budget makes enough structural
reforms to boost growth, the central bank could chip in with
cheaper money to boost growth.
• RBI is also looking forward to the Government linking the
small savings rate to the market rate which will help banks to
lower base lending rate.

7. • Rajan did announce a few policy measures which are bound
to have a positive impact in the medium term. By allowing
foreign investors to buy more Indian government bonds, he
could help create a new set of investors for these securities,
besides ensuring that rates remain stable.
• Structural reforms in the forthcoming Union Budget that
boost growth while controlling spending will create more
space for monetary policy to support growth, while also
ensuring that inflation remains on the projected path of 5 per
cent” by the end of 2016-17.

8. • Rajan hinted that the RBI will have a close look at the
fiscal path to be chartered by the Central government,
especially the fiscal deficit targets, borrowing plan and
structural reforms, including steps to boost training and
skilling and services sector inflation in areas such as
healthcare and education.
• With unfavourable base effects on the ebb and moderate
prices of fruits and vegetables and crude oil, the January
2016 target of 6 per cent should be met.

9. Highlights – 6th Bi Monthly Monetary
policy
• Repo Rate – 6.75% (Unchanged)
• Reverse Repo Rate – 5.75% (Unchanged)
• CRR (Cash Reserve Ratio) – 4% (Unchanged)
• Bank Rate – 7.75% (Unchanged)
• MSF (Marginal Standing Facility) – 7.75% (Unchanged)
• SLR (Statutory Liquidity Ratio) – 21.5% (Unchanged)

10. • Policy to remain accommodative if fiscal side helps
• Reforms in Budget to create space for rate cut
• Expects FY17 inflation at around 5 pc
• Indian economy is being viewed as a beacon of stability
• Pegs FY16 growth at 7.4 pc; FY17’s at 7.6 pc
• RBI to create a special ecosystem for start up funding
• Prospects for the rabi harvest are improving slowly .

11. Policy Review
• Upcoming Union Budget 2016: While maintaining a status
quo on rates, the RBI has clearly put the onus on the
government to maintain fiscal prudence while unveiling the
policies in the Union Budget 2016.
• Though the RBI remains hopeful that inflation will remain
under check, it has not factored the impact of the 7th Pay
Commission in its inflation forecast. The RBI expects the 7th
Central Pay Commission award to impact inflation for one -
two years.
• Inflation still continues to be a key monitorable for the RBI
and the central bank expects it to be around 5% by the end of
fiscal 2016-17.

12. • The RBI expects growth to accelerate gradually going ahead
despite significant headwinds. Expectations of a normal
monsoon after two consecutive years of rainfall deficiency,
large positive terms of trade gain, improving real incomes of
households and lower input costs of firms are some of the
factors according to the RBI that should contribute to
strengthening the growth momentum.
• The central bank, however, remains concerned regarding
weak domestic private investment demand, re-emergence of
concerns relating to stalled projects, excess capacity in
industry, sluggish external demand conditions dampening
exports, and lists them as key headwinds that could hamper
this growth.

13. • The central bank has also emphasized the need for ease of doing
business, in line with the Government's Start-up India initiative
and plans to contribute to an ecosystem that is conducive for
growth of start-ups.
• However the actual make-up of the committee and decision-
making powers will dictate the policy outlook towards the end of
the year. While these factors will influence the scale of cuts, if
any, we maintain our view that an aggressive rate-cutting cycle is
not on the cards this year.

14. • That was probably part of the rationale behind the central
bank front-loading the bulk of the cuts last year, when low oil
prices amplified the improvement in the economy’s
fundamentals and the external backdrop was more favorable
than this year.
• under the assumption of a normal monsoon and the current
level of international crude oil prices and exchange rates,
inflation is expected to be inertial and be around 5 per cent by
the end of fiscal 2016-17.
• monetary policy was broadly in line with market expectations
and the government will unveil fiscal consolidation roadmap
in the Budget 2016-17.

15. RBI Views
• On the whole, RBI is confident of the fiscal management by
the Government and hopes that effective supply management
will contain food inflation.
• RBI is also looking forward to the Government linking the
small savings rate to the market rate which will help banks to
lower base lending rate.
• On the inflation front, RBI suggests vigilance over the uptick
of retail inflation excluding food and fuel so that the overall
inflation rate is kept in check.

16. Future Outlook
• RBI feels that India is ahead of China on certain parameters
like health of the banking sector but in terms of the size of the
economy and external trade China is much larger.
• RBI Governor Raghuram Rajan feels a gradual approach is
desirable and has therefore opted for it instead of going in for a
‘big bang’ move.
• India is on the way for a steady growth path with the target
retail inflation of 5% by March 2017. The second quarter GDP
growth rate of 7.4% was higher than that of China’s 6.9%.
• Focus is now on the impact of the Government policies on the
economy.

17. THANK YOU