Key takeaways from RBI’s February 2018 Monetary Policy Meet


The Reserve Bank of India (RBI) on Wednesday kept the benchmark repo rate at 6 percent and raised inflation forecast in its monetary policy.

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Here are key takeaways from the meet

Global economic activity gained further pace since last monetary policy. Economic optimism, falling unemployment and low interest rates supporting recovery.

>Global trade continues to expand, underpinned by strong investment and robust manufacturing activity.

>Financial markets volatile of late due to uncertainty over the pace of like US Fed rate hikes. Strong US January employment data points to faster pace of hikes.

>Advance Central Statistics Office (CSO) estimates show gross value added (GVA) decelerating to 6.1 per cent in 2017-18 from 6.6 per cent in 2016-17 due mainly to slowdown in agriculture, mining, manufacturing, public administration and defence (PADO) services.

>Some high frequency indicators for services sector improving. Commercial vehicle sales growth at eight-year high in December; cargo movement up in November, mixed in December. Domestic and international air passenger traffic and foreign tourist arrivals up sharply in November-December.

>Retail inflation up sixth consecutive month in December, due to low base effect, higher food and fuel prices, housing inflation due to higher house rent allowances (HRA) for government employees under the 7th central pay commission (CPC).

>December quarter average inflation at 4.6 percent, and March quarter estimated at 5.1 percent. This is higher than the 4.3-4.7 percent range for the second half of this fiscal, projected in the previous RBI policy.

>Inflation outlook clouded by several uncertainties on the upside, including higher minimum support price for farmers, and a higher than expected fiscal deficit figure for 2017-18 as well as 2018-19.

>Households’ inflation expectations, measured by the Reserve Bank’s survey of households, stay elevated for both three-month ahead and one-year ahead.

>Liquidity in the system continues to be in surplus mode, but moving steadily towards neutrality.

>Merchandise exports rebound in November and December, led by petroleum products, engineering goods and chemicals. Exports of readymade garments contracted.

>CPI inflation for first half of 2018-19 estimated in the range of 5.1-5.6 per cent due to higher crude, raw material prices. Second half inflation estimated at 4.5-4.6 percent, with risks tilted to the upside.

>GVA growth for 2017-18 projected at 6.6 per cent, down from the previous projection of 6.7 percent. GVA growth for 2018-19 projected at 7.2 per cent overall – in the range of 7.3-7.4 per cent in H1 and 7.1-7.2 per cent in H2.

>RBI to continue with neutral stance, reaffirms commitment to keep headline inflation close to 4 per cent on a durable basis.

>Economy on recovery path, including early signs of a revival of investment activity. Global demand improving, which should help strengthen domestic investment activity.moneycontrol