Sixth RBI Bi Monthly Policy Review

RBI issued its (6th) sixth bi monthly monetary policy review on 3rd February for the financial year 2014-15.

raghuram_rajan

Snapshot

CRR 4% (unchanged)
SLR 21.5% (reduced by 50 basis points)
Repo Rate 7.75% (unchanged)
Reverse Repo Rate 6.75% (unchanged)
Bank Rate 8.75% (unchanged)
MSF Rate 8.75% (unchanged)
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Highlights

  • SLR: Statutory Liquidity Ratio (the proportion of funds scheduled commercial banks are required to keep aside and necessarily invest in government securities) has been cut by 50 basis points from 22 percent to 21.5 percent of deposits w.e.f February 7. RBI considers this as a move that will help banks to increase lending advising that banks should use this headroom to increase lending to productive sectors to support investment and growth in the economy.
  • CRR: The Cash Reserve Ratio of scheduled banks remains unchanged at 4 percent of NDTL (Net Demand and Time Liabilities).
  • Repo Rate: The RBI kept the repurchase rate (the interest rate at which it lends short-term funds to banks) unchanged at 7.75 percent. The RBI had cut the rate on January 15, outside policy review cycle from 8 percent to 7.75 percent. In this aspect, the RBI Governor Raghuram Rajan said, “Given that there have been no substantial new developments on the disinflationary process or on the fiscal outlook since January 15, it is appropriate for the Reserve Bank of India to await them and maintain the current interest rate stance.”
  • Reverse Repo Rate: It remains unchanged at 6.75 percent.
  • Bank Rate: Remains unchanged at 8.75 percent.
  • MSF Rate: Marginal Standing Facility rate also remains unchanged at 8.75 percent.
  • Exports: RBI has decided to replace export credit refinance (ECR) facility with the provision of System Level Liquidity w.e.f February 7.
  • RBI will continue to provide liquidity under overnight repos of 0.25 percent of bank-wise NDTL at the LAF (Liquidity Adjustment Facility) repo rate and liquidity under 7-day and 14-day term repos of up to 0.75 percent of NDTL of the banking system through auctions.
  • INFLATION is likely to be around the target level of 6 percent by January 2016.
  • FISCAL DEFICIT of budgeted 4.1 percent will NOT be missed despite touching the 99 percent level by November, says the confident RBI.
  • Baseline projection for growth using the old GDP base has been retained at 5.5 percent for 2014-2015.
  • CAD– RBI estimation of Current Account Deficit (CAD) for 2014-15 at 1.3 percent of the GDP has been comfortably financed by net capital inflows.
  • Real GDP growth in 2015-16 is expected to rise to 6.5 percent.
  • RBI increased the eligibility limit for foreign exchange remittances under the Liberalised Remittance Scheme (LRS) to USD 250000 per person from USD 125000 last year.
  • RBI received 72 applications for Small Finance Banks and 41 applications for Payments Banks. These applications will be evaluated by two External Advisory Committees (EACs)for recommending to RBI.

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