NEW DELHI: The Reserve Bank of India (RBI) on Thursday maintained status quo on policy rate by leaving the repurchase rate (or repo rate) unchanged at 6.25 per cent in its first bimonthly policy of FY18. The central bank also kept the cash reserve ratio (CRR) unchanged at 4 per cent. However, it raised the reverse repo rate by 25 basis points to 6 per cent. RBI Governor Urjit Patel called it the central bank’s first line of defence to deal with a flood of liquidity in the system. It also revised the MSF to 6.5 per cent from 6.75 per cent. The marginal standing facility is a window for banks to borrow from the Reserve Bank of India in an emergency situation when inter-bank liquidity dries up completely. Here are top takeaways from the RBI money policy review: Excess liquidity: The central bank said surplus liquidity in the banking system declined to Rs 4,80,600 crore in March from an average of Rs 6,01,400 crore in February and Rs 7,95,600 crore as on January 4. “Currency in circulation expanded steadily during this period. Its impact on the liquidity overhang was, however, partly offset by a significant decline in cash balances of the government up to mid-March, which released liquidity into the system. Thereafter, the build-up of government cash balances on account of advance tax payments and balance sheet adjustment by banks reduced surplus liquidity to Rs 3,14,100 by end-March,” RBI said. GST, monsoon upside risks to inflation: RBI noted that risk was evenly balanced. It noted that there was uncertainty around the south west monsoon as the probability of an El Niño event between July and August is rising. Inflation may also rise 100-150 basis points over 12- 18 months, if the recommended increase in house rent allowance under the seventh CPC is awarded. In addition, there could also be one-off effects of the GST. RBI expects the headline CPI inflation to undershoot the target of 5 per cent for Q4 of FY17, in “view of the sub-4 per cent readings for January and February.” The central bank has forecast an average inflation of 4.5 per cent in the first half of FY18 and 5 per cent in the second half of the year. Remonetisation to drive GVA growth: RBI pegged GDP growth at 7.4 per cent in 2017-18, compared with 6.7 per cent in 2016-17, with risks ‘evenly balanced.’ In its policy statement, the central bank said the pace of remonetisation will continue to trigger a rebound in discretionary consumer spending. It noted that the activity in cash-intensive retail trade, hotels and restaurants, transportation and unorganised segments has largely been restored. A significant improvement in transmission of past policy rate reductions into banks’ lending rates post demonetisation should help encourage both consumption and investment demand of healthy corporations, it said. Also “various proposals in the Union Budget should stimulate capital expenditure, rural demand, and social and physical infrastructure all of which would invigorate economic activity. The imminent materialisation of structural reforms in the form of the rollout of the GST, the institution of the Insolvency and Bankruptcy Code, and the abolition of the Foreign Investment Promotion Board will boost investor confidence and bring in efficiency gains. The upsurge in initial public offerings in the primary capital market augurs well for investment and growth,” RBI said. EM outlook improving: This is good news for the domestic stock market. In its review, RBI noted that the outlook for emerging market economies (EMEs) is gradually improving and are suggesting the slowdown that dragged these economies last year is bottoming out. “In China, supportive macroeconomic policies, surging credit growth and a booming property market have held up the momentum of growth albeit amidst concerns about financial stability and capital outflows. In Brazil, hardening commodity prices are providing tailwinds to reforms undertaken by the authorities to pull the economy out of recession, although financial fragilities remain a risk. Russia is benefiting from the firming up of crude prices and it is widely expected that growth will return to positive territory in 2017,” it noted. Farm loan a moral hazard: The RBI Governor called the recent farm loan waiver decision of the UP government as a moral hazard that “can discourage an honest credit culture, and crowd out private borrowers. It is the time to eschew loan waiver culture, Patel said. In its policy statement, the central bank said that the country’s general government deficit, which is high by international comparison standards, poses yet another risk for the path of inflation, which is likely to be exacerbated by farm loan waivers. “The debt waiver announced can significantly impact the credit culture among the agriculture communities in other states. More importantly, demand for debt waiver may also come in from other states as well. The waivers may mask the delinquencies for the time being. Nevertheless, it carries the risk of significantly impairing asset quality going forward. The unintended outcome of this could be reduced availability of credit to the farmers from banks, forcing them to resort to the unorganised lending sector,” said India Ratings. Booster for realty: Banks allowed to invest in real estate investment trusts (REITs) and infrastructure investment trusts (InvITs), which analysts saw as a big positive for the real estate sector and construction sector and also home financiers. Shares of DLF jumped some 5 per cent following the RBI policy announcement. However, some analysts pointed out that REITs essentially are about commercial properties, and hence only stocks like DLF are set to benefit.