RBI HIKES REPO RATE FOR THE FIRST TIME IN 4.5 YEARS

RBI HIKES REPO RATE FOR THE FIRST TIME IN 4.5 YEARS, the rate at which banks borrow from RBI, 25 bps to 6.25% During its second bi-monthly  policy review of 2018-2019.This is the first hike since january 2014, when the rate was raised to 8%.the hike comes amid rising oil prices and high retail inflation, which accelerated to 4.58 in April.

RBI HIKES REPO RATE FOR THE FIRST TIME IN 4.5 YEARS

GDP FORECAST

The central bank retained GDP growth for 2018-19 at 7.4 per cent — the same as in the April policy. Growth is projected in the range of 7.5-7.6 per cent in April-September and 7.3-7.4 per cent in October-March, with risks evenly balanced.

RBI hikes repo rate for the first time in 4.5 years

Inflation:
The RBI revised upwards the retail inflation estimate to 4.8-4.9 per cent for the first half and 4.7 per cent in the second half of 2018-19.

It includes the impact from HRA for central government employees, with risks tilted to the upside.

RBI HIKES REPO RATE FOR THE FIRST TIME IN 4.5 YEARS

Market abuse regulations
The RBI policy statement spoke of various regulatory initiatives undertaken to increase activity and participation in financial markets and redistribute financial exposure of the banking system.
“Regulations to prevent abusive market practices need to be strengthen.

Fixed Income Money Market and Derivatives Association of India (FIMMDA) have developed a fair practice code (FPC) for voluntary adoption by banks and other members,” the RBI said in the  release.

RBI hikes repo rate for the first time in 4.5 years

RBI HIKES REPO RATE FOR THE FIRST TIME IN 4.5 YEARS

Updates on small finance banks:

RBI Deputy Governor Vishwanathan said the apex bank will come out with norms for conversion of urban cooperative banks into small finance banks.

Spreading of MTM losses
In the wake of spurt in the yields of government securities,
Banks were given an option to spread, over four quarters, the mark-to-market losses recorded on their investment portfolio
During the quarters ended December 2017 and March 2018.
RBI hikes repo rate for the first time in 4.5 years

RBI HIKES REPO RATE FOR THE FIRST TIME IN 4.5 YEARS

Updates on MSMEs
In light of benefits from increasing formalisation of the economy, the 180-day past due criterion,

In respect of dues payable by GST-registered MSMEs  from Jan 1, 2019 onwards, shall be align to the extant norm in a phased manner.
For entities that do not get registered under GST by December 31, 2018,
The asset classification in respect of dues payable from January 1, 2019, onwards shall immediately revert to the 90-day norm.

RBI hikes repo rate for the first time in 4.5 years

Low Ticket Housing
The RBI has observed that the level of non-performing assets (NPAs) for the ticket size of up to Rs 2 lakh has been high and is rising briskly.

Banks need to strengthen their screening and follow up in respect of lending to this segment in particular.

The Reserve Bank is closely monitoring this sector and will consider appropriate policy response.

RBI HIKES REPO RATE FOR THE FIRST TIME IN 4.5 YEARS

INDIAN ECONOMY

Indian economy grew at 7.7 percent during January-March quarter (Q4) of financial year 20171-18 compared to 6.1 percent a year ago,

driven by gains in manufacturing and consumer spending,

Central Statistics Office data showed last week.

RBI hikes repo rate for the first time in 4.5 years

RBI has revised CPI inflation for 2018-19 to 4.8-4.9 percent in H1 and 4.7 percent in  H2.

Crude oil prices have been volatile recently, this imparts considerable uncertainty to the inflation outlook both on the upside and the downside’

RBI HIKES REPO RATE FOR THE FIRST TIME IN 4.5 YEARS

HISTORY OF REPO RATE OF RBI

After the cut in repo rate on 2 August 2017, banks reduced their Marginal Cost of Funds-Based Lending Rate (MCLR) in response to the announcement.

This directly impacted the amount of EMI that customers had to pay for their loans.

With the MCLR imposed by the banks and non-financing companies reducing significantly post the cut,

customers enjoyed the benefits of getting their loans sanction at a cheaper rate.

RBI hikes repo rate for the first time in 4.5 years.jpg

Since the repo rate has remained unchanged, individuals can continue to enjoy the same benefits by paying a smaller amount as EMI towards their loans.

NOW THE UPGRADED RATES ARE

BANK RATE – 7.75%

REPO RATE -6.75%

REVERSE REPO RATE -5.75%

CRR- 4%

SLR -21.5%

MSF-7.75%

This post is written by HARISH WADHWANI

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