The much awaited Monetary Policy Committee (MPC) released by the RBI has come as a relief for all banks and financial institutions. RBI cut the benchmark repo and reverse repo rate by 25 basis points each to 6 percent and 5.75 percent respectively.
Here are the key highlights of the RBI policy:
The repo and reverse repo rates have been slashed on the back of medium-term inflation target of 4% (with +/- 2%).
The inflation chart will be chalked out depending on the price revisions and food inflation, GST updations on product pricing, house rent allowance under 7th pay commission.
Due to lack of cash with banks, manufacturing activity will be moderately-paced in the second half of the year. Banks may be required to waive farm loans for most.
Rising tensions between America and North Korea has not yet been discounted by the market. The missile launch may open the downside for markets.
Adequate rainfall and good monsoons have heralded a lot of cheer in the market. Not only this, amplified monsoons have bettered the rural sentiments across the country.
Banks will now be required to file twin-balance sheet, something which could attract sluggish investment.
A slew of improvements is being forayed into the infrastructure segment. The government is on its toes to remove all bottlenecks towards ensuring housing for all.
Although the markets have surged and scaled to new heights, it is not easy to say that the global market dynamics are safe and healthy. Amidst tensions at India-China border, there is an emergence of various militant groups across the world.
The currency in circulation has dropped down from 1.5 trillion in 2017-18 to 95 billion in June and July as against the first two months of 2017.
RBI Policy: Effect on Stock Markets
The policy rate cut was announced at 2:30 pm, one hour before the stock market ends. Opposed to expectations, the market tanked down a bit lower post the announcement.