In its fifth bi-monthly monetary policy statement, 2017-18, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) has kept the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.0 per cent. Consequently, the reverse repo rate under the LAF remains at 5.75 per cent, and MSF and Bank Rates at 6.25 per cent.

The MPC has taken the decision on the basis of an assessment of the current and evolving macroeconomic situation. It (the decision of the MPC) is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth, RBI said in a statement.

In the MPC’s assessment, there have been several significant developments in the recent period which augur well for growth prospects, going forward. First, capital raised from the primary capital market has increased significantly after several years of sluggish activity. As the capital raised is deployed to set up new projects, it will add to demand in the short run and boost the growth potential of the economy over the medium-term.

Second, the improvement in the ease of doing business ranking should help sustain foreign direct investment in the economy. Third, large distressed borrowers are being referenced to the insolvency and bankruptcy code (IBC) and public sector banks are being recapitalised, which should enhance allocative efficiency.

The MPC noted that the impact of these factors can be buttressed by reducing the cost of domestic borrowings through improved transmission by banks of past monetary policy changes on outstanding loans.

The next meeting of the MPC is scheduled on February 6 and 7, 2018. (RKS)

Fibre2Fashion News Desk – India

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