Informist, Thursday, Aug 8, 2024

MUMBAI – Following are edited excerpts of the top 10 announcements made by Reserve Bank of India Governor Shaktikanta Das today after the Monetary Policy Committee meeting:

POLICY RATES

The Monetary Policy Committee decided by a majority of four out of six members to keep the policy repo rate unchanged at 6.50%. Consequently, the standing deposit facility rate remains unchanged at 6.25% and the marginal standing facility rate and the bank rate at 6.75%.

MPC external members Ashima Goyal and Jayanth Varma voted for a rate cut of 25 basis points.

MPC STANCE

The MPC voted 4-2 to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns with the target while supporting growth.

Goyal and Varma voted for a change in stance to neutral.

GROWTH

High-frequency indicators of domestic activity are showing resilience in 2024-25 (Apr-Mar). Steady progress in southwest monsoon, higher cumulative kharif sowing and improving reservoir levels augur well for the kharif output. The likelihood of La Nina conditions developing during the second half of the monsoon season is likely to have a bearing on agricultural production this year. On the demand side, the services sector and manufacturing activity remained buoyant. Household consumption is supported by a turnaround in rural demand. However, spillovers from protracted geopolitical tensions, volatility in international financial markets and geo-economic fragmentation pose risks on the downside. Investment activity is likely to remain on track amid the government's continued thrust on infrastructure spending.

Taking these factors into consideration, the real GDP growth forecast for 2024-25 has remained unchanged at 7.2%. Projections have been revised for Apr-Jun to 7.1% from 7.3%, kept unchanged for Jul-Sep at 7.2%, for Oct-Dec at 7.3%, and for Jan-Mar at 7.2% with risks evenly balanced. For the first time, real GDP growth for 2025-26 was also announced, which is projected at 7.2%.

INFLATION

Headline CPI inflation edged up due to higher-than-expected food inflation. Fuel remained in deflation for the tenth consecutive month. Core inflation moderated to a historic low in May and June. Food inflation, with a weight of around 46% in the CPI basket, contributed to more than 75% of headline inflation in May and June. Vegetable prices increased sharply and contributed about 35% to inflation in June. High inflation pressures persisted across other major food items also.

A degree of relief in food inflation is expected from the pick-up in the southwest monsoon and healthy progress in sowing. Buffer stocks of cereals continue to be above the norms. Global food prices showed signs of easing in July, after registering increases since March 2024.

Taking into account these factors, the CPI inflation projection was retained at 4.5% for 2024-25, with inflation in Jul-Sep at 4.4%, up from 3.8?rlier, and revised inflation for Oct-Dec at 4.7% against 4.6?rlier, and Jan-Mar at 4.3% against 4.5%, previously. For the first time, CPI inflation projection for 2025-26 was also announced, which is projected at 4.4%.

LIQUIDITY

System liquidity transited from deficit in June to surplus in July. System liquidity, as measured by the net position under the liquidity adjustment facility, was in deficit during June but turned into a surplus during July. Thereafter, it remained in surplus in August (up to Aug 6). In June, when the liquidity conditions tightened, the central bank injected liquidity through variable rate repo operations during the second half of the month, but mopped up surplus liquidity through variable rate reverse repo auctions as liquidity conditions eased in July. Mirroring the liquidity dynamics, the weighted average call rate remained close to the middle of the liquidity adjustment facility corridor.

Looking ahead, the RBI will continue to be nimble and flexible in its liquidity management, keeping in view the evolving liquidity conditions to ensure that money market interest rates evolve in an orderly manner.

PUBLIC REPOSITORY OF DIGITAL LENDING APPS

To encourage the digital lending ecosystem in India, The Reserve Bank has taken further measures in this direction and to address the problems arising from unauthorised digital lending mobile applications, the central bank proposed to create a public repository of digital lending applications deployed by its regulated entities. The regulated entities will report and update information about their digital lending applications in this repository which will help consumers to identify unauthorised lending apps.

FREQUENCY OF REPORTING OF CREDIT INFORMATION TO CREDIT INFORMATION COMPANIES

The RBI proposed that lenders are required to report credit information to credit information companies on a monthly basis or at such shorter intervals as may be agreed between the lenders and the credit information companies. It is proposed to increase the frequency of reporting of credit information on a fortnightly basis or at shorter intervals. Consequently, borrowers will benefit from faster updation of their credit information, especially when they repay their loans. The lenders, on their part, will be able to make better risk assessments of borrowers.

ENHANCING TRANSACTION LIMIT FOR TAX PAYMENTS THROUGH UPI

The RBI has now decided to increase the limit for tax payments through unified payments interface to 500,000 rupees from 100,000 rupees per transaction to further ease tax payments by consumers through UPI. Currently, the transaction limit for UPI is 100,000 rupees, except for certain categories of payments which have higher transaction limits.

INTRODUCTION OF 'DELEGATED PAYMENTS' THROUGH UPI

The RBI has proposed to introduce a facility of "Delegated Payments" in UPI. This would enable an individual--a primary user--to allow another individual--a secondary user--to make UPI transactions up to a limit from the primary user's bank account without the need for the secondary user to have a separate bank account linked to UPI. This will further deepen the reach and usage of digital payments.

CONTINUOUS CLEARING OF CHEQUES

To better the cheque truncation system, the RBI has proposed to reduce the clearing cycle by introducing continuous clearing with 'on-realisation-settlement' in cheque truncation system, while at present, cheque clearing through cheque truncation system operates in a batch processing mode and has a clearing cycle of up to two working days. After the newly proposed system, cheques will be cleared within a few hours on the day of presentation, which will speed up cheque payments and benefit both the payer and the payee.

End

Compiled by Vaishali Tyagi

Edited by Akul Nishant Akhoury

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