The Policy rate has taken ground realities into consideration. The upward revision to CPI inflation forecast for Q4 FY 18 to the 5.1% to 5.6% range shows the concern by MPC on the inflation outlook. However, this was on expected lines in the wake of rising international oil prices and impending MSP hikes. This ensured status quo in policy rates. Growth outlook for FY 18 was revised down slightly from 6.7% to 6.6% while for FY 19 this was scaled down modestly from 7.4% to 7.2% probably due to uncertain outlook on the export front and oil prices.
The forbearance given to MSMEs below an exposure level of Rs.25 Crore is a welcome development. This supplements the favorable tax treatment accorded to this segment in the Union Budget. MSMEs contribute 31% to GDP and are the largest employment generators. The forbearance on NPAs will go a long way towards improving their cash flows and will in turn help banks in managing delinquency levels. Besides, the current cap of Rs.5 Crore and Rs. 10 Crore for MSMEs in service sectors categories has been done away with. This will help banks seamlessly increase their priority sector lending portfolio, besides sparing them the need to park funds under RIDF at a low rate of return.
Markets were largely unchanged post the policy announcement as the policy was along expected lines.
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