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Highlights of Monetary Policy Review- Aug 2019

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Monetary policy committee conducted its third bi-annual RBI policy review in August 2019. Here are the key highlights of RBI Policy meet

Key highlights of RBI Monetary Policy Review

Low economic growth forecasts

RBI has revised GDP growth forecast to 6.9% (from earlier 7%) for 2019-20.

Why is GDP growth rate declining in India?

GDP growth is based on the industry outlook, consumer demands. There are several factors which are responsible for decrease in GDP growth rate.

  1. Due to rising unemployment, per capita spending and consumer demand will decrease.
  2. Due to declining consumer demand, industry production will be impacted, and it will decrease
  3. There has been decrease in FDI/FII activities, and foreign funds are decreasing as they are seeing better opportunities elsewhere. This will impact in industry performance. Net FDI have decreased to $6.8 billion as compared to $7.9 billion a year before.
  4. Global economics scenario is grim, and lot of countries are facing problem of high unemployment and shrinking industry. This has impacted service heavy industry of India.

Key rates are decreased

For the fourth consecutive times, RBI has decreased key rates like repo rate and reverse repo rate.

Repo rate and Reverse repo rate both decreased by 0.35%

Why has RBI decreased repo and reverse repo rate ?

Negative economics outlook and low demand has prompted RBI to decrease its key rates. Some of the most important factors influencing in this decision are:

  1. Unemployment is at the peak. There are lot of sectors where mass layoffs are happening
  2. Lot of companies (like automobile sector) are facing trouble due to less demand.
  3. To push the growth, RBI has decreased the key rates. This will help in increasing money supply and increasing credits.
  4. RBI has forecasted low growth estimates then before. Low rates will help in revival of industry and jobs
  5. Currently Repo rate is at 5.40%, which is lowest in 9 years. (Just after 2008 global financial crisis)

Read more: What is repo rate

Setting up of Central Payment Fraud Registry

What is Central Payment Fraud Registry

Cental Payment Fraud Registry will be used to track payment system related frauds. There will real time fraud monitoring, and aggregate data will be published to highlight emerging fraud risks.

24×7 NEFT payment services

NEFT (National Electronics Funds Transfer) will be operated on round the clock basis from December 2019. As of now, this service is available only on working hours of banks.

Conclusion

RBI has taken precautionary measures in wake of growing slowdown by decreasing key rates. Currently inflation is under control, so RBI may further decrease rates in coming future. Major problem economy is facing is credit flow. There has been lot of restriction in term of lending (like NBFC are barred from lending) and also banks are put under surveillance (due to rising NPAs).

You can also view summary of RBI monetary policy review on our youtube channel.


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