Wednesday, December 7, 2016

RBI Governor Urjit Patel's first credit Policy - 2.30 pm

RBI governor Urjit Patel and MPC shocked analysts and markets by keeping the repo rate unchanged at 6.25%. “The decision of the MPC is consistent with an accommodative stance of monetary policy in consonance with the objective of achieving consumer price index (CPI) inflation at 5 per cent by Q4 of 2016-17 and the medium-term target of 4 per cent within a band of +/- 2 per cent, while supporting growth,” the policy statement said. Six members voted in favour of the monetary policy decision.
The move not to cut repo rate comes as a big surprise since most economists were of the view that post demonetisation, RBI would be compelled to cut rates. This is the first monetary policy review after Modi government’s demonetisation step and the fifth bi-monthly monetary policy statement for 2016-17. The decision comes at a time when India’s GDP grew at 7.2% versus 7.6% YoY in the second quarter of the current financial year. The Narendra Modi government on November 8 announced that all old Rs 500 and Rs 1000 notes will cease to legal tender money. The move was aimed at rendering black money useless. However, with a huge amount of money being withdrawn from circulation(86%), there is a near-unanimous view that the short-term impact on growth would be harmful.

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