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This was a no surprise monetary policy from RBI.  

The RBI maintained a status quo on the interest rate but announced reduction of SLR by 25 bps every calendar quarter, starting 1st Jan 2019, till it reaches 18% from the present 19.5%. SLR is that portion of deposits banks have to hold with themselves in highly liquid government securities. This is mandated to ensure that banks always have enough funds to honour depositor’s demand, without having loaned out all the funds.

 The MPC maintained its stance at “calibrated tightening.”

It is too early for many to cry for a rate cut as the global threats remain. Crude price is down right now but its unpredictable thus given the kind of volatility, it is really too immature to expect a rate cut any time soon.

At the ensuing Press Conference, the RBI Governor said that effective 1st April 2019, retail loans would be pegged to external benchmarks like repo rate, Govt’s 91-days Treasury Bill yield produced by the Financial Benchmarks India Private Ltd (FBIL), or Govt’s 182-days Treasury Bill yield produced by the FBIL, or any other benchmark market interest rate produced by the FBIL.

Banks can choose any one of these for charging the interest rate but once chosen, the same one remain constant over the period of the loans.


A quick look at the credit policy highlights:

  • Kept the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.5%.
  • Reverse repo rate under the LAF remains at 6.25%
  • The marginal standing facility (MSF) rate and the Bank Rate remains at 6.75%
  • Decision of MPC is consistent with the stance of calibrated tightening of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4%.
  • The broad-based weakening of food prices imparts downward bias to the headline inflation trajectory, going forward.
  • The projected inflation path remains unchanged after adjusting for the HRA impact of central government employees as this impact dissipates completely from December 2018 onwards.
  • Going forward, lower rabi sowing may adversely affect agriculture and hence rural demand.
  • GDP growth for 2018-19 has been projected at 7.4 per cent (7.2-7.3 per cent in H2) as in the October policy
  • While the decision on keeping the policy rate unchanged was unanimous, Dr. Ravindra H. Dholakia voted to change the stance to neutral.
  • The next Credit Policy will be out on 7th Feb 2019.

For the markets, once again, this event is over and done with; all eyes and ears will be rooted only and only on 11th Dec for the Assembly election results. That’s all that will matter….

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