MPC cuts interest rate by a quarter point

This was the first monetary policy statement of the new RBI governor Urjit Patel

GN Bureau | October 4, 2016


#interest rates   #monetary policy   #Reserve Bank of India   #Urijit Patel   #RBI   #repo rates  
Reserve Bank of India
Reserve Bank of India

In the fourth bi-monthly monetary policy statement, the Reserve Bank of India’s monetary policy committee (MPC) reduced the repo rate by 25 basis points, from 6.5 percent to 6.25 percent. The MPC, headed by the newly appointed RBI governor Urjit Patel, said that its decision was “consistent with an accommodative stance of monetary policy in consonance with the objective of achieving consumer price index (CPI) inflation at 5 percent by Q4 of 2016-17 and the medium-term target of 4 percent within a band of +/- 2 per cent, while supporting growth”.

The committee, which has three eminent economists as independent members, said it expected that the strong improvement in sowing, along with supply management measures, would improve the food inflation outlook. “The government has announced several measures to cool food inflation pressures, especially with regard to pulses. These measures should help in moderating the momentum of food inflation in the months ahead,” the MPC said.

The committee added that the momentum of growth is expected to quicken with a normal monsoon raising agricultural growth and rural demand, as well as by the stimulus to the urban consumption spending from the pay commission’s award. “The accommodative stance of monetary policy and comfortable liquidity conditions should support a revival of credit to the productive sectors,” it said.
 

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