Monetary and Liquidity Measures
- Keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.5 per cent;
- Keep the cash reserve ratio (CRR) of scheduled banks unchanged at 4.0 per cent of net demand and time liabilities (NDTL) ; and
- Continue to provide liquidity as required but progressively lower the average ex ante liquidity deficit in the system from one per cent of NDTL to a position closer to neutrality.
Policy Stance & Rationale:
Since the first bi-monthly statement of April 2016, global growth is uneven and struggling to gain traction. World trade remains muted in an environment of weak demand. Global financial markets have recorded gains through Q2 of 2016, spurred by risk-on investor sentiment. The US dollar continues to mirror changes in expectations of monetary policy action by the Fed.
- The ebbing of inflation pressures for two consecutive months to March, after a period of steady rise, was interrupted once again in April. The inflation surprise in the April reading makes the future trajectory of inflation somewhat more uncertain
- . Domestic conditions for growth are improving gradually, mainly driven by consumption demand, which is expected to strengthen with a normal monsoon and the implementation of the Seventh Pay Commission award.
- A strong monsoon, continued astute food management, as well as steady expansion in supply capacity, especially in services, could help offset the upward pressures on inflation.
- On a reassessment of balance of risks, therefore, the GVA growth projection for 2016-17 has
been retained at 7.6 per cent with risks evenly balanced.
The third bi-monthly monetary policy statement for 2016-17 will be announced on August 09, 2016.
Source: Forexserve
