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Last Updated : Feb 07, 2019 06:10 PM IST | Source:

RBI Monetary Policy: A quick read of the policy document

The MPC cut repo rate by 25 basis points to 6.25 percent in its sixth bi-monthly monetary policy. Consequently, the reverse repo has come down to 6 percent.

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Moneycontrol Bureau

The Reserve Bank of India (RBI) Monetary Policy Committee (MPC) on February 7 voted to cut the repo rate by 25 basis points and changed its stance from ‘calibrated tightening’ to neutral.

Following are the key takeaways from the monetary policy:


- Repo rate cut by 25 basis points and stance of policy changed from calibrated tightening to neutral.

- Slowdown in global economic activity since December MPC meeting. Similar trend in some major emerging market economies too.

- Crude oil prices up from December lows, but below October peak. Base metals recovering on hopes of thawing of trade disputes and production disruptions. Gold prices up on geo-political uncertainty and volatility in equity markets.

- Real gross domestic product (GDP) growth for FY19 estimated at 7.2 percent. Gross fixed capital formation (GFCF) seen accelerating and consumption expenditure (both private and government) seen slowing.

- Production and imports of capital goods, contracted in November/December. Credit flows to industry remain muted.

- Revenue expenditure of the Centre, excluding interest payments and subsidies, contracted in Q3. Revenue expenditure of States increased sharply.

- Gross value added (GVA) for FY19 seen at 7.0 percent against 6.9 percent in FY18. Agricultural, services GVA to soften, industrial GVA to grow.

- Rabi sowing so far (up to February 1, 2019) lower than in the previous year, but overall shortfall of 4.0 percent across various crops expected to catch up as the season comes to a close.

- Index of industrial production (IIP), slowed down in November. The manufacturing purchasing managers’ index (PMI) for January in expansion on the back of increased output and new orders.

- High-frequency indicators of services sector—vehicle sales, tourism ecosystem—suggest some moderation in the pace of activity.

- Continuing deflation in food items, a sharp fall in fuel inflation and some edging down of inflation excluding food and fuel keeping consumer inflation in check.

- Inflation in household goods and services; health; recreation and amusement; and education, up in December.

- LPG prices down, on lower international petroleum product prices. Kerosene inflation up due to the calibrated increase in its administered price.

- Inflation expectations of households down by 80 basis points for the three-month ahead horizon and by 130 basis points for the 12-month ahead horizon, over the last round.

- Inflation in the prices of farm inputs and industrial raw materials remained elevated, despite some softening. Growth in rural wages moderated in October.

- Year-on-year export growth almost flat in November and December 2018, primarily due to a high base effect and weak global demand. Net FDI flows during April-November 2018 up YoY. India’s foreign exchange reserves USD 400.2 billion on February 1, 2019.

- Short-term outlook for food inflation appears particularly benign, despite adverse base effects.

- CPI inflation revised downwards to 2.8 per cent in Q4:2018-19, 3.2-3.4 percent in H1:2019-20 and 3.9 percent in Q3:2019-20, with risks broadly balanced around the central trajectory.

- GDP growth for 2019-20 projected at 7.4 percent – in the range of 7.2-7.4 percent in H1, and 7.5 percent in Q3 – with risks evenly balanced.

- Headline inflation projected to remain soft near term reflecting current low level of inflation and the benign food inflation outlook.

- Trade dispute, geopolitical uncertainties, erratic monsoon, volatile financial markets, crude prices, key risks to watch for.

- Investment activity recovering, supported by public spending on infrastructure. Need to strengthen private investment activity and private consumption.

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First Published on Feb 7, 2019 12:46 pm
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