RBI Maintains Unchanged Rates While Monitoring Soaring Food Prices

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The Reserve Bank of India (RBI) under the leadership of Governor Shaktikanta Das has disclosed the key decisions reached during the latest bi-monthly monetary policy review for FY24. The Monetary Policy Committee (MPC) of the central bank, comprising six members, conducted deliberations from August 8 to 10. The pivotal outcome of this meeting is the retention of the repo rate at 6.5%. This announcement follows a sequence of repo rate hikes totaling 250 basis points (bps) since May 2022.

Here are the main highlights from the RBI Policy:

Interest Rate Adjustments:

The repo rate remains steady at 6.5%.

The Standing Deposit Facility (SDF) rate sustains at 6.25%.

Both the Marginal Standing Facility (MSF) rate and the Bank Rate are upheld at 6.75%.

The Cash Reserve Ratio (CRR) stands at 4.5%.

Projections for GDP: The projection for real GDP growth in FY224 is upheld at 6.5%.

Q1FY24 GDP forecast stands at 8%.

Q2FY24 GDP forecast maintains at 6.5%.

Q3FY24 GDP projection is set at 6%.

Q4FY24 GDP prediction rests at 5.7%.

The GDP growth estimation for Q1FY25 is envisioned at 6.6%.

Inflation Predictions:

The Consumer Price Index (CPI) inflation forecast for FY24 is elevated to 5.4% from the previous 5.1%.

Q2FY24 CPI inflation projection is raised to 6.2% from 5.2%.
Q3FY24 CPI inflation estimation is increased to 5.7% from 5.4%.

Q4FY24 CPI inflation outlook is maintained at 5.2%.

CPI inflation forecast for the period April-June 2024 is set at 5.2%.

Liquidity Measures: All scheduled banks are mandated to maintain an Incremental Cash Reserve Ratio (I-CRR) of 10% pertaining to the rise in their Net Demand and Time Liabilities (NDTL) between May 19, 2023, and July 28, 2023.

Revised Infrastructure Debt Fund (IDF) Framework: A revised regulatory framework has been implemented for Infrastructure Debt Funds (IDFs). The noteworthy modifications include: (i) withdrawal of the necessity for IDFs to have a sponsor, (ii) empowerment of IDFs to finance toll-operate-transfer (ToT) projects directly, (iii) authorization for IDFs to raise funds through External Commercial Borrowings (ECBs), and (iv) optional inclusion of tri-partite agreements for Public-Private Partnership (PPP) projects.

Reset Mechanism for Floating-Interest Loans: A proposal is underway to establish a transparent framework for resetting interest rates on floating-interest loans.

Unified Payments Interface (UPI) Enhancements:

Conversational Payments are set to be launched on the UPI platform.

The transaction limit for UPI Lite is amplified to ₹500 from ₹200.

Introduction of offline payments using Near Field Communication (NFC) technology is on the horizon.

This comprehensive update showcases the Reserve Bank of India's dedication to maintaining financial stability and fostering economic growth in the evolving fiscal landscape.