The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) met on August 8-10, 2023, and released the ‘Monetary Policy Statement, 2023-24 Resolution of the MPC‘ which kept India’s real Gross Domestic Product (GDP) growth retained at 6.5% in FY24 (2023-24) with FY24’s Q1 at 8%, Q2 at 6.5%, Q3 at 6%, and Q4 at 5.7%. This is attributed to the growth in rural and urban areas, a rise in investment activity, and the government’s intention to increase capital expenditure.
- This marks the 3rd MPC meeting in FY24, following the bi-monthly policy reviews held in April 2023 and June 2023.
- Real GDP growth for Q1FY25 (April-June, 2024-25) is projected at 6.6%.
- The focus of the MPC’s 3rd FY24 meeting is to prioritize withdrawal of accommodation to guide inflation towards the target gradually, while simultaneously supporting growth.
RBI’s Policy Rates:
The MPC kept the policy rates unchanged in August 2023.
| Category | Rate |
|---|---|
| Policy Repo Rate | 6.50% |
| Fixed Reverse Repo Rate | 3.35% |
| Standing Deposit Facility (SDF) Rate | 6.25% |
| Marginal Standing Facility (MSF) Rate | 6.75% |
| Bank Rate | 6.75% |
| Cash Reserve Ratio (CRR) | 4.50% |
| Statutory Liquidity Ratio (SLR) | 18% |
Inflation:
i.Consumer Price Index (CPI) inflation or retail inflation is projected at 5.4% for FY24 from the 5.1% forecast in June 2023.The projections for specific quarters of FY24 are Q2 at 6.2%, Q3 at 5.7%, and Q4 at 5.2%.
- This forecast is on the assumption of normal monsoon.
ii.CPI inflation for Q1FY25 is projected at 5.2%.
iii.RBI set an objective of achieving the medium-term target for CPI inflation of 4% within a band of +/- 2%, while supporting growth.
iv.CPI headline inflation increased to 4.8% in June 2023 from 4.3% in May 2023 amid higher prices of vegetables, eggs, meat, fish, cereals, pulses and spices.
v.Core CPI (i.e., CPI excluding food and fuel) was steady in June 2023.
vi.Fuel inflation softened during May-June 2023, primarily reflecting the fall in kerosene prices.
Domestic Economy:
i.As on August 4, 2023, the total area sown under kharif crops was 0.4% higher than in August 2022.
ii.The index of industrial production (IIP) expanded by 5.2% in May 2023 while core industries output rose by 8.2% in June 2023.
iii.The composite Purchasing Managers’ Index (PMI) rose to a 13-year high in July 2023.
iv.The daily absorption of liquidity under the Liquidity Adjustment Facility (LAF) averaged Rs 1.8 lakh crore during June-July 2023 as compared with Rs 1.7 lakh crore in April-May 2023.
v.Money supply (M3) expanded by 10.6% y-o-y as on July 28, 2023 as against 10.1% on May 19, 2023.
vi.Bank credit grew by 14.7% y-o-y as on July 28, 2023 as compared with 15.4% on May 19, 2023.
vii.India’s foreign exchange reserves stood at US$ 601.5 billion as on August 4, 2023.
Cement production and steel consumption recorded robust growth.
Global Economy:
In mid-July 2023, the US dollar dropped to a 15-month low due to predictions of an early end to the monetary tightening cycle. While it partially recovered afterwards, certain emerging market economies face growth risks due to factors like low external demand, high debt, and limited external funding. The worldwide economy is slowing down, with growth differing across regions.
- India is contributing approx 15% to global growth.
Banks to maintain 10% incremental CRR from August 12, 2023
RBI mandates banks to hold an Incremental Cash Reserve Ratio (ICRR) of 10% on increase in deposits between May 19 and July 28, 2023 with effect from the fortnight starting Aug. 12, 2023.
- This measure intends to absorb liquidity added to the banking system due to a return of 2000-rupee denomination notes. Rs 3.14 lakh crore worth of Rs 2,000 banknotes, or 88% in circulation, had returned to the banking system by July 31, 2023.
- ICRR is a temporary measure to overcome a sudden increase in deposits by draining off the liquidity.
RBI; raises payment limit via UPI lite to Rs 500 from Rs 200
In order to encourage wider adoption of UPI (Unified Payments Interface) Lite, RBI has increased the transaction limit to Rs 500 from Rs 200. This will eliminate the need for multiple transactions for users.
- However, overall limit is retained at Rs 2000 to contain the risks associated with relaxation of two-factor authentication.
- UPI Lite is an ‘on-device wallet’ feature that will allow users to make real-time small-value payments without using a UPI PIN. It was launched in September 2022.
Objective:
To harnesse the new technologies for enhancing digital payments experience for users
Background:
The RBI has set a cap of Rs 200 per transaction and a total limit of Rs 2000 for each payment method for small-value offline digital payments, such as National Common Mobility Card (NCMC) and UPI Lite. This eliminates the requirement for two-factor authentication in these cases, making them faster, reliable, and contactless options for routine small payments and transit fares. However, there have been requests for these limits to be increased. Therefore, the above change has been made.
RBI allows offline payment of UPI by using Near-Field Communication
RBI proposed to introduce Near Field Communication (NFC) technology to facilitate offline payments. This move aims to support digital payments when internet connectivity is weak or not available, ensuring swift transactions with fewer declines.
Conversational payments in UPI
RBI plans to introduce ‘conversational payments’ on UPI, allowing users to securely initiate and finalize transactions through AI-powered conversations. This feature will be accessible on both smartphone and feature phone UPI platforms, aiding the expansion of digital adoption across India. Initially in Hindi and English, it will later be available in additional Indian languages.
Development of Digital Public Tech Platform
Reserve Bank Innovation Hub (RBIH) is developing a digital Public Tech Platform to facilitate easy lending by providing necessary digital data to lenders. It will have an open architecture, allowing financial players to connect seamlessly using open Application Programming Interfaces (APIs) in a ‘plug and play’ model.
- This initiative will be introduced gradually as a pilot project, focusing on information access and use cases. Its aim is to enhance lending efficiency by cutting costs, expediting disbursements, and enabling scalability.
RBI proposes framework for allowing borrowers to switch to fixed interest rate regime
RBI unveils framework allowing borrowers to switch to fixed interest rate from floating interest rate, providing relief to home, auto loan borrowers.
- The framework envisages that lenders should clearly communicate with the borrowers for resetting the tenor and/or Equated Monthly Instalments (EMI) , provide options of switching to fixed rate loans or foreclosure of loans, transparent disclosure of various charges incidental to the exercise of these options, and proper communication of key information to the borrowers.
Review of NBFC Infrastructure Debt Fund (IDF-NBFC)
In pursuit of bolstering Infrastructure Debt Funds (IDFs) for a larger role in infrastructure financing and aligning regulations for different types of NBFCs, a review for IDFs has been conducted in collaboration with the government by RBI.
- The updated framework eliminates the need for a sponsor for IDFs, allows them to directly finance Toll Operate Transfer projects (ToT), grants access to External Commercial Borrowings (ECBs), and makes tripartite agreements optional for Public-Private Partnership (PPP) projects.
- The IDF was created as a separate category of NBFCs in 2011.
Members of MPC:
Dr. Shashanka Bhide; Dr. Ashima Goyal; Prof. Jayanth R. Varma; Dr. Rajiv Ranjan; Dr. Michael Debabrata Patra; and headed by Shaktikanta Das (RBI Governor).
- The minutes of the MPC’s meeting will be published on August 24, 2023.
- The next meeting of the MPC is scheduled during October 4-6, 2023.
Recent Related News:
i.As per the article State of the Economy authored by RBI Deputy Governor Michael Debabrata Patra and other RBI officials, inflation is slowing down personal consumption expenditure. On the other hand, it is moderating corporate sales and holding back private investment in capacity creation.
ii.On 20th June 2023, the Appointments Committee of the Cabinet (ACC) approved the appointment of Swaminathan Janakiraman, Managing Director (MD) (Corporate Banking and Subsidiaries) of the State Bank of India (SBI) to the post of Deputy Governor (DG) of the Reserve Bank of India (RBI). He succeeded Mahesh Kumar Jain.
About Reserve Bank of India (RBI):
Governor – Shaktikanta Das
Deputy Governors –Michael Debabrata Patra, M. Rajeshwar Rao, T. Rabi Sankar, and
Swaminathan Janakiraman
Establishment – 1st April 1935
Headquarters – Mumbai, Maharashtra
