Highlights of RBI’s 3rd Bi-Monthly MPC Meeting 2024 – RBI Keeps Repo Rate Unchanged at 6.5%; Retains 7.2% GDP Growth for FY25

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) met on August 6 to 8, 2024 and released its third Bi-Monthly Monetary Policy of Financial Year 2024-25 (FY25) which continues to expect India’s real Gross Domestic Product (GDP) to grow at 7.2%  in the Financial Year 2024-25(FY25).The August FY25 meeting was RBI’s 50th MPC meeting.

• The Repo rate under the Liquidity Adjustment Facility (LAF) was kept unchanged at 6.50% for the 9th consecutive time.
• RBI has projected the real GDP growth for FY25 with Q1 at 7.1%; Q2 at 7.2%; Q3 at 7.3%; Q4 at 7.2% and Q1:FY26 is projected at 7.2%.
• The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target.

The next meeting of the MPC is scheduled during October 7 to 9, 2024.

Note: The Repo rate is the rate at which the central bank of a country lends money to commercial banks in the event of any shortfall of funds.

RBI’s Policy Rates:

CPI inflation forecast maintained at 4.5% for FY25:

i.The RBI has maintained 4.5% as Consumer Price Index (CPI) inflation projection for FY25 with Q2 at 4.4%, Q3 at 4.7% and Q4 at 4.3%.

• CPI inflation for Q1:2025-26 is projected at 4.4%.

ii.RBI has set a target for CPI inflation of 4% within a band of +/- 2%.

iii.Headline inflation increased to 5.1% in June 2024 after remaining steady at 4.8% during April-May 2024. This increase is mainly due to a sharp increase in prices of vegetables, pulses and edible oils along with a pick-up in inflation across cereals, milk, fruits and prepared meals.

• The fuel prices remained low due to the sharp cuts in Liquified Petroleum Gas(LPG) price in August 2023 and March 2024.

iv. Core (CPI excluding food and fuel) inflation decreased to 1%in May-June 2024 with core services inflation also at its lowest in the series.

RBI raises tax payment limit through UPI from Rs 1 lakh to Rs 5 lakh

The RBI has proposed to increase the Unified Payments Interface (UPI) limit for tax payments from Rs 1 lakh to Rs 5 lakh to help the taxpayers to pay higher tax liability quickly.

i.In December 2023, the central bank hiked the limit to Rs 5 lakh from certain payments, such as hospital and educational institutions.

ii.According to National Payments Corporation of India (NPCI), for normal UPI the transaction limit is up to Rs 1 Lakh per transaction.

• For few specific categories of transaction in UPI like Capital Markets, Collections, Insurance, Foreign Inward Remittances – the transaction limit is up to 2 lakh and for Initial Public Offering (IPO) and Retail Direct Scheme the limit is up to Rs 5 lakh per transaction.

RBI allows two users to share one bank account for UPI payments

i.The UPI has a user base of 424 million individuals. In order to further expand the base, the RBI has proposed to introduce “Delegated Payments” in UPI.

ii.This feature would allow an individual (primary user) to set a UPI transaction limit for another individual (secondary user) on the primary user’s bank account.

iii.It could also ease the UPI payments experience for those users who may not have a bank account, and could improve access to digital payments in regions where a single bank account is shared among family members.

iv.The delegated UPI payments would allow an individual to set a UPI transaction limit for another individual on the primary user’s bank account.

RBI Proposes New Measures to Tackle Unauthorized Digital Lending Apps

i.The RBI has proposed to create a public repository for digital lending apps (DLAs) in order to prevent the issue of unauthorised players in the digital lending sector.

ii.Aim: To tackle the rising concerns about illegal lending practices and enhance consumer protection.

iii.This repository will be operated by the RBI-regulated entities and will be responsible for reporting and regularly updating information about their digital lending applications in the repository that includes adding new digital lending apps that meet regulatory standards and removing those that are no longer in compliance or have been found to be operating unlawfully.

Forex reserves rises to historic high of USD 675 billion

i.According to the MPC Report, India’s forex reserves touched a record high of USD 675 billion as on August 2, 2024.

• The previous all-time high was USD 670.857 billion on July 19, 2024.

ii.Foreign Portfolio Investors (FPI) turned net buyers in the domestic market from June 2024 with net inflows of USD 9.7 billion during June- to August 6, after witnessing outflows of USD 4.2 billion in April and May 2024.

RBI proposes continuous clearing of cheques under CTS

i.Cheque Truncation System (CTS) currently processes cheques with a clearing cycle of up to two working days.

ii.In order to improve the efficiency of cheque clearing and reduce settlement risk for participants, and to enhance customer experience, it is proposed to continuous clearing of cheques with ‘on-realisation-settlement’.

iii.Cheques will be scanned, presented, and passed in a few hours and on a continuous basis during business hours. Thus, the clearing cycle will reduce from the present T+1 days to a few hours.

RBI shortens frequency of bank reports to credit information companies

i.The RBI has decreased the frequency of reporting credit information of borrowers to Credit Information Companies (CIC) to 15 days from a 30-day period.

• This will be effective from January 1, 2025.

ii.Earlier lenders were required to report this information at monthly intervals. This measure will provide a more up-to-date picture of a borrower’s indebtedness.

Monetary Policy Committee

i.Under RBI Act,1934 (amended in 2016), the RBI is responsible for conducting monetary policy in India with the primary objective of maintaining price stability and growth.

ii.Section 45ZB of the RBI Act provides for the constitution of a six-member Monetary Policy Committee (MPC) to determine the policy rate required to achieve the inflation target.

iii.The first such MPC was constituted on September 29, 2016. It consisting of six members. The RBI governor is the chairman of the MPC.

About Reserve Bank of India (RBI)
The Reserve Bank of India (RBI) is responsible for monetary stability, currency management, targeting inflation, regulating the banking system, and setting interest rates. It was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934.
Headquarters – Mumbai, Maharashtra 
Governor –Shaktikanta Das