RBI cuts

In the first monetary policy meeting of the financial year 2016-17, Reserve Bank of India cut the policy rate (repo rate) to 6.5% from 6,75%. It reduced the corridor between repo rate and reverse repo rate to 50 basis points. Hence, the reverse repo rate went up from 5.75% to 6.0%.It effected a mini- cut in the Cash Reserve Ratio (CRR) by reducing the minimum daily balance on CRR to 90% from 95%.

 

It maintained its GVA growth forecast of 7.6% for 2016-17 and maintained an accommodative monetary policy stance. In English, it means that the central bank remains disposed towards further rate cuts rather than rate hikes. But, as I told the Zee Business Interview on the monetary policy decision, all central banks are data-dependent at all times. It is a truism. Much depends on the outlook for monsoon.

For now, gradual decrease in interest rates depending on the inflation trajectory and focus on improved monetary policy transmission are adequate. We should not forget that the big reduction in the small savings interest rates announced by the government recently constitutes substantial ‘policy ease’ too.

The fiscal budget document for 2016-17 had an interesting announcement to the effect that large borrowers would be directed to borrow a portion of their requirements directly from the market rather than from banks. There was further progress on that in this monetary policy statement:

26. Large Exposures: Taking into account the views and suggestions received
from stakeholders on the discussion paper on ‘Large Exposures Framework and
Enhancing Credit Supply through Market Mechanism’, a fresh discussion paper will
be issued by April 30, 2016 on large borrowers meeting a part of their funding
requirements from markets. A draft circular on the Large Exposures Framework will
be issued for public comments in June 2016 (to be implemented by January 1, 2019). [Link]

As per usual practice, RBI had released its monetary policy report too. One needs to spend some time on it.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s