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सेमिनार: अंग्रेज़ी सीखने का अवसर (23 सितंबर: दोपहर 3 बजे)
Q. First monetary policy in new fiscal: Comment on first monetary policy of the new fiscal year.
Apr 07, 2017 Related to : GS Paper-3

Ans :

Introduction-

Monetary policy committee (MPC) of Reserve bank of India gave the first policy announcement of the new financial year. The policy decision by the 6-member monetary policy committee was unanimous. The key features of monetary policy committee are as follows. 

Key Features-

  • The policy repo rate under the liquidity adjustment facility (LAF) has been unchanged at 6.25%
  • The reverse repo rate under the LAF is increased at 6.0%.
  • The marginal standing facility (MSF) rate and the Bank Rate were increased to 6.50%.
  • The monetary policy has kept cash reserve ratio unchanged at 4%.

Analysis-

  • Though monetary policy committee has not changed repo rate, but it has narrowed the policy rate corridor, the gap between the rate at which banks can deposit money with the central bank (the reverse repo rate) and the rate at which banks can get money for a fortnight from the central bank (the marginal standing facility, or MSF).
  • Raising the reverse repo rate would incentivise banks to park more funds with the RBI, i.e there will be less money to spend, hence it may affects the growth.
  • The RBI finds global and domestic growth prospects have brightened, so cutting rates may not priority. Further it may underneath current benign inflation conditions, there are broad-based inflation pressures, which make the inflation outlook for challenging.
  • If world growth improves, commodity prices would be buoyant and the rupee is more likely to depreciate than to strengthen, given a recent spell of firmness even as the dollar has risen against most currencies.
  • In this backdrop the RBI’s worry about is inflation can be justified, hence the government should come forward to push reforms. It also needs to clean up bank books to enable them to lend afresh holds the key to revival of growth.

Conclusion-

The first monetary policy decision that does not brought any major changes is justifiable under current domestic and international conditions. Now government should come forward to push reforms so that the issues can be addressed. Government and RBI should work hand in hand to address various aspects.

 


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