The RBI Governor Mr. Urjit Patel released the first bimonthly policy of the fiscal year 2018 on Thursday, 06 April 2017. He told that six members RBI committee had unanimously decided to keep the Repo rate unchanged at 6.25%. Additionally the decision to keep Cash Reserve Ratio(CRR) unchanged at 4% was also taken into consideration owing to the overflown liquidity in the banks resulted after demonetisation.
What’s Repo Rate and Cash Reserve Ratio?
When Reserve Bank of India lends money to the banks for a shorter period of time, it’s called the Repo Rate. While Cash Reserve Ratio (CRR) is the total amount deposited in the banks by the customers and it’s calculated in terms of percentage. This huge reserves is either to be hold by commercial banks in cash or as deposits with the central bank.
However, to give room to PM Narendra Modi’s dream – a house for all – RBI has given a significant relief to banks and allowed them to invest in Real Estate investment Trusts(REITs) and for the first time, Banks are also allowed to invest in Infrastructure Investment Trust (InvITs). Hence the Reverse repo is hiked to 6% from 5.75%. This will create a positive impact in real estate sector. Moreover, this may also limit the overall amount soaked up in liquidity.
It’s noted that 67% of the money, deposited in the banks after the note ban, has been withdrawn by the people in order to cater their cash transaction demands. So the most anticipated move of replacing SDF(Standing Deposit Facility) with MSS(Market Stabilisation Scheme) hasn’t been taken.
Another relief for banks is that RBI has revised MSF rate to 6.50% from 6.75%. MSF stands for Marginal Standing Facility. It means that banks can borrow money from RBI during emergency situations like the shortage of liquidity flow. The total liquidity absorption so far is Rs.3.1 lac crores.
Other expectations by RBI:
• MPC forecasts inflation at 4.5 per cent in H1 of FY18, at 5% in H2.
• GVA growth expected at : 6.7% for FY17 and 7.4% for FY18
• CPI is expected to be 4.5% for H1 FY18E & 5% for H2 FY18E
However, RBI went strongly against the government’s decision on waiving off farmers loan. The RBI governor said, “Farm loan waiver is a moral hazard, discourages an honest credit culture, and can even crowd out private borrower. Time to eschew loan waiver culture.”