6 Quick Takeways from the RBI Monetary Policy

The Reserve Bank of India today unveiled its Monetary Policy in which it kept interest rates steady.

The Monetary Policy Framework Agreement signed by the Government of India and the Reserve Bank in February 2015 will shape the stance of monetary policy in 2015-16 and succeeding years.

RBI had cut repo rate twice this year, once in January and again in March by 25 bps both the times.

Here are quick highlights from the RBI's Monetary Policy (Credit Policy) unveiled today.

1) Repo Rates Unchanged

The RBI kept the policy repo rates under the liquidity adjustment facility (LAF) unchanged at 7.75 per cent.

Repo rates are rates at which the Reserve Bank of India lends money to banks.

A cut in these rates generally means lower borrowing costs for banks, which may or may not pass on these benefits to customer.

2) Cash Reserve Ratio Unchanged

Cash reserve ratio (CRR) of scheduled banks unchanged at 4.0 per cent of net demand and time liability.

Cash reserve Ratio (CRR) is the amount of Cash that the banks have to keep with RBI. This Ratio is basically to secure solvency of the bank and to drain out the excessive money from the banks.

3) Inflation projected at 6 Per cent

Retail inflation measured by the year-on-year changes in the revised consumer price index (CPI) firmed up for the third successive month in February as favourable base effects dissipated, despite the price index remaining virtually flat since December, the RBI said.

CPI inflation targeted at 6 per cent by January 2016 and at 4 per cent by the end of 2017-18

4) Projected GDP at 7.8 Percent

The outlook for growth is improving gradually. Comfortable liquidity conditions should enable banks to transmit the recent reductions in the policy rate into their lending rates, thereby improving financing conditions for the productive sectors of the economy.

The RBI said, assuming a normal monsoon, continuation of the cyclical upturn in a supportive policy environment, and no major structural change or supply shocks, output growth for 2015-16 is projected at 7.8 per cent.

5) Banking Stocks React to RBI Credit Policy

Banking stocks reacted negatively to the RBI Policy meet. Axis Bank was lower by 1.98 per cent, Canara Bank down 1.44 per cent ICICI Bank fell 1.21% in a trade.

6) Markets

Markets were trading in negative after the RBI policy as the market expected the rate cuts. Sensex was seen at 28,467, lower by 36 points. Nifty at 8,648, down by 11 points.

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