The Reserve Bank of India (RBI)’s 6th Bi-monthly Monetary Policy Committee (MPC) met on on 6th, 7th and 8th February 2024 and decided to retain the repo rate under the liquidity adjustment facility (LAF) at 6.50%.
- For the 6th consecutive time, repo rate was retained at 6.5% to maintain a tight surveillance on inflation.
- The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth.
Click here for the Monetary Policy Statement 2023-24 Resolution of the MPC
RBI’s Policy Rates:
The MPC kept the policy rates unchanged.
| 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% |
GDP Growth:
According to the Monetary Policy Statement, India’s real Gross Domestic Product (GDP) growth for 2024-25 is projected at 7% with first quarter (Q1) FY 25 (April-June) at 7.2%; Q2FY25 (July-September) at 6.8%, and Q3FY25 (October-December) at 7%, and Q4FY25 (January-March) at 6.9%.
Inflation:
i.Consumer Price Index (CPI) inflation or retail inflation is projected at 5.4% for FY24 (2023-24), with FY24’s Q4 at 5%.
ii.CPI inflation for FY25 is projected at 4.5% with Q1FY25 at 5%, Q2FY25 at 4%, and Q3FY25 at 4.6%, and Q4FY25 at 4.7%.
- This forecast is on the assumption of normal monsoon.
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.Core inflation (CPI inflation excluding food and fuel) eased to a four-year low of 3.8% in December 2023.
Domestic & Global Economy:
i.Domestic economic activity is doing well and is expected to be supported by the momentum in investment demand, optimistic business sentiments and rising consumer confidence.
ii.According to the first advance estimates (FAE) released by National Statistical Office (NSO) under the Ministry of Statistics and Program Implementation (MoSPI), real GDP is expected to grow by 7.3% year-on-year (y-o-y) in 2023-24 due to investment activities.
iii.Gross value added (GVA) expanded by 6.9% in 2023-24. This increase is driven by manufacturing and services sectors
iv.With respect to the global economy, the growth is expected to remain steady in 2024 despite past turbulence.
- Inflation is easing, yet fluctuating.
- Financial markets are volatile due to uncertain central bank actions.
- Lower interest rate expectations are boosting equities, while Emerging market economies (EMEs) face currency fluctuations amidst volatile capital flows.
Introduction of Programmability and Offline Transactions to CBDC Pilot
The Central Bank Digital Currency Retail (CBDC-R) pilot, currently facilitating Person to Person (P2P) and Person to Merchant (P2M) transactions, will be expanded to include programmability and offline functionality.
- Programmability will allow for defined payments, such as government benefits or corporate expenses, while offline capability will enable transactions in areas with limited internet access.
- These enhancements will be introduced gradually through pilot testing.
RBI launched a pilot of the retail CBDC in December 2022, and achieved the target of having 10 lakh transactions a day in December 2023. Click Here to Read about CBDC-R
Framework Proposed for Digital Payment Authentication
RBI, emphasizing digital payment security, plans to introduce a principle-based ‘Framework for authentication of digital payment transactions’, moving beyond the traditional SMS (Short Message Service)-based One Time Password (OTP).
- This framework will accommodate emerging authentication technologies.
- Instructions in this regard will be issued separately.
Key Points:
i.RBI’s Digital Payments Index rose to 418.77 in September 2023 from 395.57 in March 2023, reflecting increased digitization of payments nationwide.
ii.Notably, there are financial cybercrimes with about 1.1 million cases registered in 2023, totaling Rs 7,488.6 crore. Implementing a principle-based authentication framework not only combats fraud but also ensures customer security and data protection.
RBI mandates Key Fact Statement for all retail, MSME loans
The Reserve Bank has taken steps to enhance transparency in loan pricing by requiring regulated entities (REs) to provide borrowers with a Key Fact Statement (KFS), detailing key loan terms, including all-in-cost.
- This requirement, initially for certain loans, will now extend to all retail and MSME (Micro, Small & Medium Enterprises) loans, empowering borrowers to make informed decisions.
RBI allows hedging of Gold Price Risk in OTC market in IFSC
In December 2022, resident entities gained access to recognized exchanges in the International Financial Services Centre (IFSC) to hedge gold price risk.
- Now, they can also hedge gold prices in the Over the Counter (OTC) segment in the IFSC, enhancing flexibility and access to derivative products. Detailed instructions will follow.
Enhancements to AePS for Financial Inclusion and Security
Aadhaar Enabled Payment System (AePS), managed by NPCI, served over 37 crore users in 2023, showcasing its key role in financial inclusion. To boost AePS transaction security, RBI plans to streamline onboarding process with mandatory due diligence, and enhanced fraud management for AePS touchpoint operators.
- Detailed instructions will be issued which will be followed by the banks.
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 next meeting of the MPC is scheduled during April 3-5, 2024.
Recent Related News:
i.On October 23, 2023, the Reserve Bank of India (RBI) in consultation with the Government of India (GoI), has expanded the range of products offered through RBI Retail Direct portal by allowing retail investors to subscribe to Floating Rate Savings Bonds , 2020 (Taxable)- FRSB 2020 (T).
ii.RBI has granted in-principle authorization to MobiKwik’s payment gateway arm Zaakpay to operate as an online payment aggregator (PA).
Static Points:
i.Under the Reserve Bank of India (RBI), Act,1934 (RBI Act,1934) (as amended in 2016), RBI is entrusted with the responsibility of conducting monetary policy in India with the primary objective of maintaining price stability while keeping in mind the objective of growth.
ii.Section 45ZB of the amended RBI Act, 1934 provides for an empowered six-member Monetary Policy Committee (MPC) to be constituted by the Central Government by notification in the Official Gazette.
- The first such MPC was constituted on September 29, 2016.
