Fifth Bi-monthly Monetary Policy Statement for 2015-16

                                                                                Policy repo rate unchanged at 6.75%
  

• Kept the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.75%;

• Kept the cash reserve ratio (CRR) of scheduled banks unchanged at 4% of net demand and time liability (NDTL)

• Continue to provide liquidity under overnight repos at 0.25% of bank-wise NDTL at the LAF repo rate and liquidity under 14-day term repos as well as longer term repos of up to 0.75% of NDTL of the banking system through auctions

• Continue with daily variable rate repos and reverse repos to smooth liquidity.

• Consequently, the reverse repo rate under the LAF will remain unchanged at 5.75% and the marginal standing facility (MSF) rate and the Bank Rate at 7.75%.

The Reserve Bank will follow developments on commodity prices, especially food and oil, even while tracking inflationary expectations and external developments. The implementation of the Pay Commission proposals, and its effect on wages and rents, will also be a factor in the Reserve Bank's future deliberations, though its direct effect on aggregate demand is likely to be offset by appropriate budgetary tightening as the Government stays on the fiscal consolidation path.

The Reserve Bank will shortly finalize the methodology for determining the base rate based on the marginal cost of funds, which all banks will move to. The Government is examining linking small savings interest rates to market interest rates. These moves should further help transmission of policy rates into lending rates. In addition, the on-going clean-up of bank balance sheets will help create room for fresh lending 

The finance ministry expects the economy to grow in the vicinity of 7.5% in FY16. The data on government finances at the end of October showed a comfortable fiscal deficit of 74% of the budget estimate compared with nearly 90% at the same time last year. 

This means the government can continue with its strategy of fast-paced capital spending to revive investment, which will provide support to the economy in the quarter ahead.