Sixth Bi-Monthly Monetary Policy Statement 2018-19

February 13, 2019

The Monetary Policy Committee (MPC) under Reserve Bank of India met on 7th February, 2019 to release Sixth Bi-monthly monetary policy statement 2018-19. On the basis of an assessment of the current and evolving macroeconomic situation at its meeting today, the Monetary Policy Committee (MPC) decided to:

  • Reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 6.5 per cent to 6.25 per cent with immediate effect.
  • the reverse repo rate under the LAF stands adjusted to 6.0 per cent,
  • the marginal standing facility (MSF) rate and the Bank Rate to 6.5 per cent

The MPC also decided to change the monetary policy stance from calibrated tightening to neutral.

Sixth Bi-Monthly Monetary Policy Statement 2018-19

Important Data in Sixth Bi-monthly monetary policy statement 2018-19

  • Retail inflation, measured by y-o-y change in the CPI, declined from 3.4 per cent in October 2018 to 2.2 per cent in December
  • Inflation in the fuel and light group fell from 8.5 per cent in October to 4.5 per cent in December
  • CPI inflation excluding food and fuel decelerated to 5.6 per cent in December from 6.2 per cent in October
 
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Proposals relating to regulation of banks and NBFCs

  • Revising the definition of ‘bulk deposit’’ from rupee deposit of ‘Rs 2 crore and above’ instead of the earlier threshold of ‘Rs 1 crore and above’ in order to provide greater operational flexibility to banks in raising such deposits.
  • Establishment of an Umbrella Organisation for urban co-operative banks (UCBs) that can provide several services so as to enhance public confidence in the UCB sector, provide regulatory comfort and promote financial stability in an inter-connected financial system
  • Harmonisation of the three separate categories of NBFCs viz., Asset Finance Companies, Loan Companies and Investment Companies (which together constitute almost 99 per cent of NBFCs in terms of numbers) by creating a merged category called NBFC – Investment and Credit Company (NBFC-ICC), in order to address the complexities associated with multiple categories of NBFCs and to provide the NBFCs greater flexibility in their operations which would result in diversified product offerings, and better access to NBFI services;
  • alignment of risk weights for bank exposures to all categories of NBFCs, other than CICs, with their credit ratings, with a view to facilitating credit flow to better rated NBFCs, lowering the cost of bank borrowings for the NBFCs and in turn, for end consumers, particularly borrowers of MFIs.

Proposals related to enhancing financial inclusion include

  • Enhancing the limit of collateral free agriculture loans from Rs 1 lakh to Rs 1.6 lakh, keeping in view the overall increase in inflation and rise in agriculture input costs – this is expected to enhance coverage of farmers in getting access to formal credit.
  • Setting up of an internal working group to examine and recommend measures to address issues pertaining to the policy framework and delivery of agricultural credit in the country.

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