CURRENT AFFAIRS 6th August, 2014

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RBI MONETARY POLICY announced on 6th Aug., 2014

RBI Third Bi-monthly Monetary policy statement- August 2014

1. Monetary and Liquidity measures: RBI has taken a cautionary approach inspite of growth revival and moderating inflation. It has kept all liquidity measures except SLR unchanged. Repo rate stands at 8%, CRR at 4% and reverse repo rate is maintained at 7%. It has reduced SLR by 50 basis points and it is at 22% providing more room for banks to provide credit for productive sectors.

2. Domestic economy: It has maintained its growth outlook for this year at 5-6% due to positive growth in industries and exports, conducive environment for investment in new projects and maintenance of fiscal deficit. However it has cautioned that risks relating to the global recovery, late monsoon and geo-political tensions may pull growth to the downside.

3. Inflation: Even when CPI inflation has moderated this month, RBI sees upside risks in the form of administered price increases, uncertainty over monsoon conditions which may lead to high food prices, possible higher oil prices stemming from geo-political concerns and exchange rate movement, and strengthening growth in the midst of supply constraints. RBI is committed to the disinflationary path of taking CPI inflation to 8% by January 2015 and 6% by January 2016.

4. External sector: External sector is stable with decreasing current account deficit, buoyant exports and FDI inflows. Foreign reserves are bolstering due to currency swap arrangements by oil companies.

5. Banking sector reforms: The Reserve Bank has taken a number of steps to enhance efficiency, increase entry, speed up resolution, and improve access to financial services. It has released guidelines for licensing payment banks and small banks, a framework to deal with stressed assets, actions to further the use of mobile phones in banking, and efforts to simplify Know Your Customer (KYC) norms, among others.

The fourth bi-monthly monetary policy statement is scheduled on Tuesday, September 30, 2014.