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Fifth Bi-monthly Monetary Policy Statement 2015-16 by Dr. Raghuram G. Rajan Governor

Dated:- 1-12-2015 - Monetary and Liquidity Measures On the basis of an assessment of the current and evolving macroeconomic situation, it has been decided to: keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.75 per cent; keep the cash reserve ratio (CRR) of scheduled banks unchanged at 4.0 per cent of net demand and time liability (NDTL); continue to provide liquidity under overnight repos at 0.25 per cent of bank-wise NDTL at the LAF repo rate and liquidity .....

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has slowed further with waning demand and oversupply in several primary commodities and industrial materials. In the United States, inventory accumulation is likely to hold down growth in Q4 of 2015. Industrial production slumped in October on cutbacks in oil drilling, while exports were undermined by the strengthening US dollar. Consumer confidence was, however, supported by the diminishing slack in the labour market. In the Euro area, high frequency indicators such as retail sales, purchasing .....

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financial markets began Q4 on a calmer note after the Federal Open Market Committee stayed on hold in September. Stock markets recorded modest gains in October; major currencies recouped some ground against the US dollar and crude oil traded briefly above US $ 50 per barrel for the first time since July. Markets were also boosted by the easing of monetary policy in China and indications of further stimulus in the Euro area and Japan. Following the early November release of robust US jobs data w .....

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e domestic front, provisional estimates of gross value added (GVA) at basic prices for Q2 of 2015-16 rose on the back of acceleration in industrial activity. Other indicators suggest the economy is in the early stages of a recovery, though with some areas of continued weakness. 5. Value added in agriculture and allied activities picked up on the modest increase in kharif output and timely policy interventions to stem the effects of the deficient south-west monsoon. Turning to Q3, the north-east .....

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The Index of Industrial Production picked up in the second quarter. Early results of the Reserve Bank s order books, inventories and capacity utilisation survey indicate that there was robust growth in new manufacturing orders in the second quarter, and finished goods inventories declined while raw materials inventories increased. Not all indicators, however, are positive. While urban consumption is showing signs of a pick-up in some areas such as passenger vehicles sales, rural demand has been .....

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of improvement in new business orders. Commercial vehicle sales (reflecting transportation demand) and domestic civil aviation passenger traffic accelerated year-on-year. On the other hand, tourist arrivals, cargo handled at major ports, railway freight traffic, domestic and international air cargo traffic, and measures of construction such as steel consumption slowed. Recent policy initiatives relating to rail, port and road projects are likely to improve construction activity, as will the Rese .....

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ice increases in respect of housing, recreation and amusement, and personal care and effects. Within this broad category, education and health services contributed most to headline inflation. Households inflation expectations remain elevated although they have edged lower recently, perhaps in response to lower prices of petrol and diesel. Rural wage growth, as also corporate staff costs, remain subdued. 10. Underlying liquidity conditions tightened in October-November with the festival season dr .....

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y rising slightly in the second week of November at the height of festival currency demand. Bank credit in the form of personal loans grew strongly as did non-bank financing flows particularly through commercial paper, public equity issues and housing finance. 11. In the external sector, exports contracted for the eleventh month in a row to October, indicative of the persisting weakness in global trade. Excluding petroleum products (PoL), however, the decline in exports was more moderate and ear .....

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oreign direct investment (FDI), external commercial borrowings and accretions to non-resident deposits have risen in relation to last year; however, portfolio outflows from both debt and equity segments rose in November. During 2015-16 (up to November 20), there has been an accretion of US$ 10.8 billion to the foreign exchange reserves. Policy Stance and Rationale 12. In the bi-monthly monetary policy statement of September, the Reserve Bank assessed that the inflation target for January 2016 at .....

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ovide some respite, the El Nino induced shortening of winter may limit this effect. The early indications of rabi sowing together with low reservoir levels suggest that astute supply management by the central government, including close coordination with State governments, is necessary to minimize any shortfall in the rabi crop. While oil prices, barring geopolitical shocks, are expected to remain benign for a few quarters more, the uptick of CPI inflation excluding food and fuel for two months .....

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spects for a revival in service sector activity have been boosted by optimism on new business, pockets of lacklustre activity such as construction weigh on the overall outlook. The step-up in public capital spending and the easing stance of monetary policy provide the enabling environment for a revival in private investment demand, supported by easing input prices and improving conditions for doing business. The growth projection for 2015-16 has accordingly been kept unchanged at 7.4 per cent wi .....

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