Central Bank Hikes Repo Rate, Retains Growth Projections

RBI had announced a 25-basis-point hike in the Repo Rate while maintaining its policy stance at 'neutral'. The June rate hike marked the first in more than four years. Since then, inflation has moved higher, further up from the RBI's target of 4 per cent over the medium term. RBI announces 25 basis points hike in Repo Rate to 6.5%.Reverse repo rate stands adjusted to 6.25%, and Marginal Standing Facility Rate to 6.75%: RBI in policy statement.

                                              RBI Monetary Policy August 2018 HIGHLIGHTS

  • Repo rate under the liquidity adjustment facility (LAF) has been raised by 25 basis points to 6.50%.
  • Reverse repo rate under the LAF stands adjusted to 6.25% and the marginal standing facility (MSF) rate and the Bank Rate has been adjusted to 6.75%.
  • The MPC Committee has decided to retain the projection of GDP growth for the financial year 2018-2019 at 7.4% and 7.5% for Q1 FY20.
  • Bank deposits at Rs 114.8 lakh crore grew by 0.5% during April 1- July 18 compared with a contraction of (-)1.5% growth in the corresponding period last year.
  • RBI Governor said that recent softening in commodity prices & GST rate cuts moderate inflation and uncertainty around inflation needs to be carefully monitored.
  • Retail inflation has been projected at 4.4% for Q2, excluding HRA impact, 4.7-4.8% in H2 FY19 and 5% in Q1 FY20 as it expects an increase in food prices due to hike in minimum support prices (MSP).
  • RBI Governor Urjit Patel also said that volatility in global financial markets continues to impart uncertainty to the inflation outlook; elevated crude oil prices pose great risk to global growth.
  • The overall banking system liquidity (i.e. total reverse repo – Total repo – MSF) continues to be pressured with liquidity deficit witnessing a sustained increase in the last three weeks.
  • The Central Government has auctioned Cash Management Bills (CMBs) amounting to Rs 65,000 crores since the last monetary policy ( i.e. after June 6, 2018), indicative of liquidity pressures
  • The 10 years GSec yields have declined from 7.92% to 7.78% during  June 6- July 27.

                                              Impact of RBI Monetary Policy

  • Essel Mutual Fund on RBI rate hike
  • Housing sales to get affected with RBI's decision to hike policy rates
  • RBI pegs retail inflation at 4.8% for second half of FY19
  • Home, car loan, EMIs to get costlier as RBI hikes repo rate by 25 basis points
  • There’s a huge impact of the policies of RBI on the trading of free stock tips