1. Monetary policy is the tool used by RBI to regulate and control the quality and quantity of money supply in Indian economy. The RBI along with controlling the money supply also keep an hawkish eye on the inflation, interest rates and takes corrective action if needed by way of monetary policy reviews.
  2. Until the mid 90s, RBI had only two monetary policy reviews a year. After Bimal Jalan took charge as governor in 1997, quarterly reviews. were introduced. His successor Y V Reddy introduced a mid-quarter review, which resulted in an announcement every 45 days.
  3. In 2014, a panel headed by the then RBI deputy governor Urjit Patel had recommended the monetary policy review in every two months. It came to be called bimonthly monetary policy review.
  4. On April 6, 2017, RBI announced it’s 6th bimonthly monetary policy review (MPR) since inception and first MPR for the financial year 2017-18 with decisions taken keeping in mind the present state of Indian economy.
  5. With mammoth demonetization, extensive accounts opening under Jan Dhan Yojana, disincentivized cash transaction and boosted digital economy, the cash surplus and liquidity with the banks is huge. The RBI needed to reduce the around Rs 4 trillion ($61.59 billion) cash accumulated in the banking system in March.
  6. This gives a signal to suck it up but increase in repo would neither help nor it is desired. Higher repo may also the cut the much needed investments in infrastructure and also why banks would approach the RBI when they themselves have surplus money? Thus Repo rate was kept unchanged at 6.25%.
  7. In the stated conditions, reverse repo may help to cut excess liquidity and therefore it’s rate was increased 25 basis points(0.25%) to 6%. Earlier it was 5.75%.
  8. The forecasts for monsoon are not encouraging with a lesser than normal rains being expected, inflationary tendencies are also to be worry about. The worry is compounded by rise in crude oil prices, volatility in exchange rate, and the effect of the 7th Pay Panel.
  9. RBI for the current fiscal 2017-18 (FY18) has projected inflation to average 4.5% in the first half of the year and 5% in the second half of the year.
  10. And lastly the Gross value added (GVA) growth is projected to strengthen to 7.4% in 2017-18 from 6.7% in 2016-17 .
  11. The next meet is scheduled on June 5-6 but no body cares unless it’s details are to be asked in exams or required for professional purposes! So like it or not, you would still keep your eyes here for the next post!