On the basis of an assessment of the current and evolving macroeconomic situation at its meeting today, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) has decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.25 per cent. Consequently, reverse repo rate under the LAF remains at 6 per cent.

The marginal standing facility (MSF) rate and the Bank Rate also remain unchanged at 6.50 per cent, RBI said in its Second Bi-monthly Monetary Policy Statement, 2017-18.

“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,” the statement said.

According to the MPC, the current account deficit (CAD) for the year 2016-17 is likely to remain within 1 per cent of GDP. Unlike in the immediately preceding quarter, capital flows in April-May 2017 were dominated by foreign portfolio investment (FPI), pushed out by risk-on investor sentiment as global growth prospects improved. Also, clarity emerged on taxation issues in the Union Budget and the expectations of faster 5 structural reforms were fuelled by the decisive outcome of State elections. The level of foreign exchange reserves as on June 2, 2017 was $381.2 billion.

Noting that inflation has fallen below 4 per cent only since November 2016, the MPC said it remains focused on its commitment to keeping headline inflation close to 4 per cent on a durable basis keeping in mind the output gap. “The current state of the economy underscores the need to revive private investment, restore banking sector health and remove infrastructural bottlenecks.”

The next meeting of the MPC is scheduled on August 1 and 2, 2017. (RKS)

Fibre2Fashion News Desk – India

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