Bi-monthly Policy of RBI
News: RBI has reduced the key policy rates by 25 basis points (bps).
How has the policy cut been brought about?
- Inflation has moved downwards significantly, with headline inflation in the next one year expected to remain contained below or at its target of 4 per cent. This has opened up space for policy action
- The Interim Budget was a pointer to 3 things
- President’s speech
- Interim Budget
- RBI’s policy action
Impact of the rate cut
- The transmission of this rate cut should reduce the borrowing costs of retail borrowers, MSMEs and corporates, thereby boosting both private capex and private consumption.
- It will benefit the Non Banking Finance Companies (NBFCs) which were in a risk of many of the loans turning into Non Performing Assets (NPAs)
- This will help in achieving the interim budget’s objective of stimulating private consumption and housing demand
- It will further boost employment opportunities
- Inflation can be studied in terms of headline and core inflation
- Between 2000 and 2012, any hike in food and fuel used to push headline inflation.
- Post 2012, the situation has reversed meaning food and fuel hike does not translate into a change into core inflation.
- Now headline inflation tracks core inflation.
- RBI has changed its stance to Neutral.
- Next policy changes will come in April
- So, RBI is likely to observe the progress of the economy in the coming months and then decide on the next course of action