The Monetary Policy Committee revised upwards estimates for agriculture and allied activities based on predictions of normal monsoon
The Reserve Bank of India (RBI)’s Monetary Policy Committee (MPC) on Wednesday decided to hike its key lending rate — the repo rate — by 25 bps to 6.25 percent.
The committee in its commentary said that consequently, the reverse repo rate under the LAF stands adjusted to 6.0 percent and the marginal standing facility (MSF) rate and the Bank Rate at 6.50 percent.
The policy document added that the decision of the MPC is consistent with the neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 percent within a band of +/- 2 percent, while supporting growth.
Monsoon and agriculture
The MPC has revised upwards the estimates of agriculture and allied activities on the supply side supported by an all-time high production of food grains and horticulture during the year.
On a quarterly basis, agriculture growth increased sharply in Q4 of fiscal 2017-18, the document published by the MPC stated.
The report has also cited monsoon picture. It said that the India Meteorological Department (IMD) on April 16, had forecast a normal south-west monsoon rainfall, which was reaffirmed on May 30. The committee feels that the forecast of normal monsoon this year augurs well for the agricultural sector.
The six-member panel also said that if the monsoon is normal and well-distributed, temporally and spatially, it may help keep food inflation benign based on the IMD forecasts.
The committee noted that the impact of revision in the Minimum Support Price (MSP) formula for kharif crops is not possible to assess at this stage due to the absence of adequate details.