RBI policy as expected: Chief Economic Adviser, SBI

New Delhi [India], Apr. 6 (ANI): The Reserve Bank of India's (RBI) monetary policy announced earlier on Thursday has been hailed as a 'cautious' effort to tackle inflation and increase in liquidity.

The Monetary Policy Committee (MPC) unanimously decided to retain the policy repo rate at 6.25 percent. However, with a view to ensuring finer alignment of the weighted average call rate with the repo rate, MPC decided to narrow the LAF corridor to 25 bps from 50 bps with immediate effect.

According to Dr Soumya Kanti Ghosh, Chief Economic Adviser, Economic Research Department of the State Bank of India, the narrowing of the corridor is perhaps an indication that RBI may not allow the term structure of interest rates to decline meaningfully against the backdrop of abundant liquidity.

"MPC has projected FY18 GVA growth rate at 7.4 percent compared to 6.7 percent growth projection for FY17, with balanced risks. For FY18, CPI inflation is projected to average 4.5 percent in the first half and five percent in the second half of the year," said Ghosh.

"On the positive side, the easing of crude oil prices due to increase in production from non-OPEC countries will have a positive effect not only on inflation but on GDP growth also. Past trends indicate that low oil prices lift global growth (and subsequently domestic growth) significantly," added Ghosh.

On the developmental and regulatory front, the RBI has taken several steps. For instance, the RBI has allowed the banks to invest in Real Estate Investment Trust and Infrastructure Investment Trust. This is positive for the banks as now they have more options of investment and at the same time this will also have a favorable impact on the real estate sector.

In case of payment and settlement, the central bank has introduced additional settlement batches for settlement of National Electronic Fund Transfer (NEFT). Also, the merchant discount rate has been rationalised. These are definitely welcome moves, paving the way for stronger financial infrastructure by encouraging a swift shift to digital modes of payment.

In its monetary policy, the RBI kept its repo rate unchanged at 6.25 percent, but made changes in the reverse repo rate at six percent after all six members of the Monetary Policy Committee (MPC) voted in favour of the decision.

"For 2017-18, inflation is projected to average 4.5 percent in the first half of the year and 5 percent in the second half," said RBI Governor Urjit Patel, who is the head of MPC.

"The Marginal standing facility (MSF) rate and the bank rate are reduced to 6.50 percent from 6.75 percent with no significant impact on bond markets," added Patel.

Patel further stated there is scope for transmission of rates. (ANI)