10 things to know before RBIs August bi-monthly monetary policy

Key Highlights: 

• RBI has maintained status quo in June Policy
• Policy repo rate stands at 6.25% 
• Since last three policy, repo rate has been kept unchanged

Third bi-monthly monetary policy for the fiscal year 2017-18 (FY18) will be presented by the Reserve Bank of India (RBI) and Monetary Policy Committee (MPC) on Wednesday.

It will be the sixth monetary policy review by Urjit Patel RBI governor and the six-member Monetary Policy Committee (MPC).

Policy repo rate under the liquidity adjustment facility (LAF) currently stands at 6.25%.

Here's a list of factors that one needs to see before the policy: 

Gross Domestic Product (GDP) Growth:

India's GDP growth declined from 8% in FY16 to 7.1% in FY17 as per provisional estimates on account of fall in mining and quarrying, construction and services. 

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Additionally the new change in the base year of macro-economic indicators like Index of Industrial Production (IIP) and WPI inflation was an impact for compilation of the GDP.

Consumer Price Index (CPI) Inflation:

At present, CPI inflation has resulted in to a historic low of 1.5% in the month of June 2017 as against 2.18% in May 2017 and 2.99% in April 2017. Decline was due to drop in food prices like cereals, egg, pulses, sugar, milk, spices and vegetables and also due to favorable base effect.

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Care Ratings in its research report mentioned that inflation in non-food components still remain in the range of 5% with inflation in housing recording a growth of 4.70% and with implementation of 7th Pay Commission, inflation in housing index might further increase.

Wholesale Price Index (WPI) Inflation:

Just like CPI, another indicator of inflation WPI has reached to 0.9% - the lowest in 11 months, compared to 2.1% recorded in May 2017. Such was led by deflation in food and non-food articles – which were at low levels and also decline witnessed fuel and power prices.

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As per Care, oil prices have increased by around 10% from the last monetary policy as a result of decline in U.S. crude inventories and recent decision of Saudi Arabia- the world’s largest oil exporter to cut back its exports.

Movement in 10-year Government-Securities (G-Secs):

10-year G-Secs yield has come down from 6.53% to 6.46% between June 08, 2017 – July 28, 2017. Care said, “Government securities have witnessed an increase in demand from both domestic and foreign investors where domestic demand has largely been driven by banks that are flushed with surplus liquidity post demonetization.”

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