Key Highlights from RBI Monetary Policy meet

Key Highlights from RBI Monetary Policy meet

Key Highlights from RBI Monetary Policy meet

The Reserve Bank of India cuts Financial Year 20 growth projection. The Reserve Bank of India (RBI) to cut the key lending rates for the 4th time in a row currently.

The key takeaways from the monetary policy are:

Global growth

RBI in its release stated that global economic activity has slowed down from June 2019 MPC meeting among elevated trade tensions as well as geopolitical uncertainty. RBI also trimmed India’s GDP growth prediction for this financial year to 6.9% from 7% earlier.

Policy rates

The Reserve Bank of India's (RBI's) monetary policy committee (MPC) had decided towards reducing the repo rate by 35 basis points (bps) to 5.40% in order to assist in reviving the economy. The reverse repo rate now adjusts to 5.15%. The Marginal standing facility (MSF) and bank rate are now adjusted towards 5.65%. Four MPC members voted for 35 bps cut as well as two voted for a 25 bps cut.

Transmission of the rate cut

RBI stated the transmission of policy repo rate reduces towards WALR on fresh rupee loans of banks has been better slightly since the monetary policy committee’s (MPC) last meeting. The banks cut their WALR on fresh rupee loans by 0.29% amid the present easing phase so far (February-June 2019.


RBI projected CPI inflation at 3.10% for Q2FY20 and 3.5-3.7% for the second half of Financial Year 20, with risk evenly balanced. The MPC noted that inflation is presently projected to remain within the target over a 12-month horizon. Since the last policy, domestic economic actions continue to be weak, with the global slowdown and rising trade tensions posing downside risks. The private consumption, the mainstay of aggregate demand, as well as investment activity,  remained sluggish. Although as past rate reduction was gradually transmitted towards the real economy, the benign inflation outlook delivered room for policy action towards closing the negative output gap. The RBI release stated that addressing growth concerns through boosting aggregate demand, particularly private investment, assumes the highest priority at this juncture although remaining consistent with the inflation mandate.

A mixed picture of the slowdown

RBI stated that high-frequency indicators of services sector activity for May-June presented a mixed picture. Tractor as well as motorcycle sales, indicators of rural demand, sustained to contract. Amongst three indicators of urban demand, passenger vehicle sales contracted for the 5th consecutive month in June. Though, domestic air passenger traffic development turned positive in June after contracting for 3 consecutive months. 

Commercial vehicle sales have been slowed down even after adjusting for base effects. Construction activity indicators slacken off, with contraction in cement production and slower growth in finished steel consumption in June. Import of capital merchandises, which is the main indicator of investment activity, contracted in June.

Commodity prices

Crude oil prices cut down sharply in mid-May on excess supplies from an upsurge in non-OPEC production, combined with a further weakening of demand. Extension of OPEC production cuts in early July didn’t have much impact on prices. The prices of gold have increased sharply from the end of May, pushed by increased safe-haven demand amidst growing downside risks to growth and a worsening geopolitical situation. RBI stated that inflation remained benign in major advanced as well as emerging market economies.

Monsoon outcome

On the domestic sector, the southwest monsoon extended intensity and spread with the cumulative rainfall 6% below the long-period average (LPA) up to August 6, 2019. In terms of its spatial distribution, 25 of the 36 sub-divisions had normal or excess rainfall as against 28 sub-divisions last year. The total area sown under Kharif crops was 6.6% lower as on August 2 than a year ago. The live storage in major reservoirs on 1st August was at the percent of the full reservoir level comparing 45% a year ago. Rainfall during the second half of the season (August-September) was predicted to be normal by the India Meteorological Department (IMD).

Updates on NBFC and liquidity

Governor Shaktikanta Das stated that NBFC loans towards the MSME sector up to Rs 20 lakh would get priority status. He also guaranteed sufficient liquidity for every needy sector.

Boost payment systems

RBI would set up a central payment fraud registry for tracking payment system scams National Electronic Funds Transfer (NEFT) services towards being active 24x7 from December from the current timings of 8.00 am to 7.00 pm on every working day (including 1st, 3rd and 5th Saturdays in a month)

Develops biller categories for Bharat Bill Payment System

The Reserve Bank of India stated that it would allow all categories of billers excluding prepaid recharges, who offer for recurring bill payments to participate in BBPS on a voluntary basis under the Bharat Bill Payment System (BBPS). 

BBPS is an interoperable medium for repetitive bill payments and presently covers five segments: direct-to-home (DTH), electricity, gas, and telecom as well as water bills.


Thus, it could be said that the RBI policy, particularly the repo rate cut, takes cognizance of the requirement to bring down interest cost on liquidity and credit, towards supporting the sluggish economic growth and to encourage aggregate demand. The success of this policy shall rely entirely on the next level of its application, i.e., the transmission of the lower rates towards the ultimate borrowers. The banks appear to be seized of this requirement and effective cascading of the benefits of a lower base rate might happen over the next few months.


eStartIndia Team

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