RBI Latest monetary policy, In response to moderated inflation, the Reserve Bank of India-led rate-setting panel on Wednesday increased the nation’s policy rate by 25 basis points while also adjusting the inflation and growth projections.

The central bank today, however, also proposed a number of steps, including QR code-based coin vending machines, extending UPI for inbound travellers to India, and regulatory activities on climate risk, in addition to the policy rate and macro outlook adjustments.

The major announcements of the RBI Latest monetary policy are as follows:

RBI raises the repo rate by 25 basis points to 6.5%

In an effort to control consumer price inflation, the Reserve Bank of India’s Monetary Policy Committee (MPC) raised the key policy rate, also known as the repo rate, by 25 basis points to 6.50 percent on Wednesday. All external benchmark-linked (based on the repo rate) loans are anticipated to become more expensive right away as a result of the RBI decision.

The RBI’s policy panel decided to raise the repo rate for the sixth time since May 2022 by a vote of 4:2, with MPC members Ashima Goyal and Jayanth R. Varma voting against the rise.

What effect will it have?

RBI Latest monetary policy Bank lending rates are anticipated to increase since the cost of money is anticipated to continue rising. Vehicle, housing, and personal loan EMIs will all increase. Due to the fact that these loans are correlated to the repo rate, banks’ external benchmark linked lending rates (EBLR) will increase by 25 bps. At this time, the repo rate is a factor in up to 43.6% of all loans.

Banks’ loan portfolios’ margin-based lending rates (MCLR), which make up 49.2% of their total loans, are also anticipated to rise. The increase will aid in reducing national inflation.

A SBI official stated that some realignment of deposit rates is anticipated.

The hike so far

Since May of this year, the RBI has raised the repo rate by a total of 250 basis points, bringing it to 6.50 percent.

The MPC increased the Repo rate by 35 basis points in December 2022 in an effort to control retail inflation. The repo rate was increased by the MPC by 40 bps in May and then by 50 bps at each of the following three meetings.

One tenth of a percentage point is referred to as a basis point.

Coin machines with QR codes will soon be available in 12 cities

In order to improve the accessibility of coins and the distribution of coins utilising machines, the RBI is putting up a pilot project on QR Code-based coin vending machines in partnership with a few top banks.

These vending machines are designed to be deployed in public locations like train stations, malls, and markets to improve convenience and accessibility.

The QCVM is a cashless coin dispenser that releases coins in exchange for a debit to the customer’s bank account through the use of the Unified Payments Interface (UPI).

RBI Latest monetary policy In contrast to typical cash-based coin vending machines, the QCVM would do away with the requirement for authenticating and physically tendering banknotes. Customers will also be able to withdraw coins from QCVMs in the necessary quantities and denominations.

The trial project will first be implemented at 19 sites in 12 cities across the nation. Guidelines for banks to encourage better coin distribution using QCVMs would be released based on the lessons learned from the pilot tests.

UPI for overseas tourists visiting India

Soon, visitors to India will be able to make retail payments via the Unified Payments Interface (UPI).

“In India, UPI has grown incredibly popular for retail digital payments. It is now being suggested that all visitors to India be allowed to use UPI for their P2M (merchant to merchant) transactions while they are there (“added Das”).

RBI Latest monetary policy This service will initially be made available to travelers from the G-20 nations who arrive at specific international airports. This facility will eventually be made available at all other entry points to the nation. Soon, the necessary operational guidance will be released.

Regulatory measures for sustainable finance and climate risk

In addition to announcing important policy decisions made by the Monetary Policy Committee, the RBI today highlighted regulatory actions on climate risk and sustainable finance (MPC).

RBI Latest monetary policy, The choice has been made to create a plan for reducing the negative effects of climate change that is based on international best practices, according to Das.

He said that on July 27, 2022, a discussion paper (DP) on climate risk and sustainable finance was posted on the RBI website for feedback from the general public. The RBI has decided to publish several regulations for regulated entities after analysing the feedback it has received in this regard (REs).

These guidelines include:

General guidelines for accepting green deposits

Framework for Disclosure of Financial Risks Related to Climate

Guidelines for Stress Testing and Climate Scenario Analysis

Governor Das stated in his virtual speech that the guidelines would be released gradually.

The RBI to extend trading hours and permit lending and borrowing in G-Secs.

In order to expand the depth of the bond market and return market trading hours in G-Sec to pre-pandemic levels, the Reserve Bank of India today suggested allowing lending and borrowing against government securities. The existing G-Sec trading hours of 9 am to 3:30 pm will be extended to 9 am to 5 pm.

“This will give investors a way to use their underutilised securities, improve portfolio returns, and enable greater involvement. This action will also help the G-sec market become more liquid and deep, facilitate effective price discovery, and contribute to the smooth completion of the market borrowing programme of the centre and states “In his policy speech, Das added.

The 6.4% GDP growth forecast for FY24

Shaktikanta Das, governor of the Reserve Bank of India (RBI), stated on Wednesday that the real GDP growth estimate for FY24 was set at 6.4% during the February meeting of the Monetary Policy Committee (MPC). The initial advance estimate put GDP growth for FY23 at 7%.

The MPC predicted growth of 7.8% for Q1 FY 24, 6.2% for Q2, 6% for Q3, and 5.8% for Q4.

Core inflation is still a problem as the RBI lowers its inflation forecast for FY23 to 6.5% from 6.7%.

The worst of the pricing pressures are believed to be behind us, so India’s central bank today lowered its projection for national inflation for this fiscal year. However, the governor raised concerns about the stickiness of core inflation.

The Reserve Bank of India reduced its inflation target from 6.7% in December to 6.5%. The central bank maintained its stance of withdrawing accommodation today while also increasing the benchmark rate by 25 basis points.

“The worst of the inflation has passed, and there are signs of moderation now.” However, there are issues with core inflation. “We must always keep a watch on inflation.”  During the post-policy press conference, RBI Governor and MPC Chair Shaktikanta Das made a statement.

It is anticipated that inflation will be 5.3% in the upcoming fiscal year (2023-2024), with quarterly rates of 5%, 5.4%, 5.4%, and 5.6%. The Mint Street and its boss previously stated that they anticipate the inflation rate to decline to 5% by April to June of the following year.

Governor of the RBI Shaktikanta Das on the Adani Group 

The market capitalisation of the group’s shares is where the overall perception originates. Banks base their lending decisions on a company’s strength and fundamentals rather than its market capitalization.

– Indian banks have refined their appraisal techniques over time.

What I wanted to say has been said. We have determined this for ourselves. Rating organisations conduct their own analyses.

– A single incident or case now has a considerably greater potential to damage the size, strength, and resilience of the Indian banking system.

India’s external situation is stable as its merchandise trade deficit decreases.

With a decrease in the product trade deficit, an increase in service exports, and faster remittance growth than anticipated, India’s external situation remains steady.

Shaktikanta Das, governor of the Reserve Bank of India, anticipates increased foreign investment and a future decline in the current account deficit.

In his monetary policy statement, Das stated that “the CAD is likely to decline in the second half of FY23 and remain eminently manageable and within the boundaries of viability.”

For the first half of FY23, the current account deficit (CAD) for the fifth-largest economy in the world was 3.3% of GDP. In FY22, CAD was 1.32%.

The third quarter showed signs of improvement as the merchandise trade imbalance shrank and imports decreased as a result of falling commodity prices.

Additionally, third-quarter services exports increased by 24.9% year over year, primarily due to software, business, and travel.

Another encouraging trend is inward remittances, which increased by over 26% in the first half of the year, more than doubling the World Bank’s annual forecast.

“Due to the Gulf countries’ improved economic prospects, this is likely to continue robust. The governor stated that the net balance for services and remittances is anticipated to stay significantly in surplus, partially balancing the trade deficit.

The ratio of the nation’s external debt to GDP decreased from 19.9% in March 2022 to 19.2% in September of the previous year. Over the same time period, the debt service ratio decreased from 5.2% to 5%.

According to international standards, India’s external debt ratios are low, according to Das.

In terms of funding, net foreign direct investment (FDI) flows are expected to remain high at $22.3 billion from April to December 2022, down from $24.8 billion during the same time last year.

Foreign portfolio inflows have also increased, with $8.5 billion flowing in from July 6 to February.6 The vast majority of the funds were invested in stocks. But so far, the inflows have been negative for the entire year.

After declining to $524.5 billion on October 21, 2022, foreign exchange reserves have increased to $577 billion as of January 27, 2023, or about 9.4 months’ worth of planned imports.

In 2022 and again this year, the local currency remained one of the least volatile among its Asian counterparts.

“Compared to the period of the global financial crisis and the taper tantrum, the devaluation and volatility of the Indian rupee have decreased significantly.” “Fundamentally speaking, the movements of the rupee reveal the resilience of the Indian economy,” Das said.

RBI to cap penalties for debtors who skip loan payments

Borrowers who have been pushed by usurious charges will be relieved when the Reserve Bank of India (RBI) caps the penalties assessed by banks and non-banks for missed loan payments. According to the central bank, any fines levied by regulated businesses must be “fair and transparent,” and lenders shouldn’t use them as a weapon to boost their revenue.

It has been decided that any fines imposed on the borrower for late payments, defaults on loan servicing, or any other material breach of the loan contract will take the form of “penal charges” that are reasonable and transparent, rather than “penal interest” that is added to the rate of interest being charged on advances. “The punitive charges shall not be added to the outstanding principal but shall be recovered separately.”

Soon, the RBI is anticipated to announce comprehensive recommendations in this regard.

According to the present central bank regulations, banks and NBFCs are given operational freedom to develop board-approved policies for the imposition of punitive interest rates on advances. While the intention behind this was to teach borrowers credit discipline, a regulatory examination by the RBI revealed that different banking procedures resulted in the levying of excessive penal interest, which led to consumer complaints and disputes.

Deputy Governor M. Rajeshwar Rao stated that “the supervisory reviews done by the RBI have indicated that most banks use the penal rate on top of the interest rate in case of payment defaults and non-compliance with terms and conditions.” “The assessments showed that there were some incidents of high charges, so we are working to create rules to ensure a clear and consistent procedure,”

According to experts, this will probably affect how profitable lenders are.

 favorably jobs,” that the deflationary process is taking place even while the economy is adding a record number of jobs. The largest drag on the market right now, according to him, is relentless FII selling, which totaled Rs 7,774 crore over the last three sessions.

After the RBI Latest monetary policy, this is what India is talking about.

The opinion of the experts is as follows:

1. Sakshi Gupta, a principal economist with HDFC Bank in Gurugram The policy had a hawkish tenor, emphasising steadfast growth momentum as well as worries about core inflation that is sticking and rising as well as the unpredictability of the world and the price of commodities. Since the central bank left the door open for future tightening and stated that it will continue to monitor the inflation trend, another rate increase of 25 bps at the following policy meeting cannot be ruled out at this time.

2. Kotak Mahindra Bank’s chief economist, Upasna Bhardwaj, of Mumbai: Given the need to stabilise inflationary expectations, the MPC delivers a raise in line with our estimates. Additionally, the MPC’s emphasis on inflation is indicated by the reiteration of the necessity for action as long as inflation exceeds the medium-term target of 4%. In the future, when inflation starts to decline, we anticipate real rates to soon approach pre-pandemic (levels), negating the need for further rate increases. We anticipate a protracted rate pause with a likely stance change in the upcoming April policy.

3. Aurodeep Nandi, vice president and economist for Nomura in India: The main query is whether the RBI is currently prepared to declare the innings on its rate hiking cycle, similar to test matches of cricket. The recent rate increase of 25 bps was in line with our predictions, but we think the time is right to go from a “removal of accommodation” position to one that is “neutral.”

As a result, the RBI Governor’s communication struck a somewhat hawkish note, raising concerns about high core inflation, projecting headline inflation at 5.3% for FY24, expressing confidence in growth, and pointing out that current monetary policy conditions are still not as tight as they were before the pandemic – which does not completely rule out further tightening. Even if this is the proper posture in light of the higher global threats, we think the policy calculus has altered from one of “de-facto” policy tightening to one that is clearly data dependent. Our baseline view is a pause going forward since we believe that both GDP and inflation may end up being lower than the RBI’s estimates.

4. Nilesh Shah, the Kotak Mahindra Asset Management Company’s managing director: This policy is in line with expectations, and the RBI has increased the repo rate by 25 basis points to guarantee that inflation is kept under control. Gilts’ introduction of lending and borrowing will balance out the tightening liquidity’s volatility. On the third day of their match with New Zealand, the RBI is behaving like the Indian cricket team. Do not let up on the pedal. They quickly and cheaply eliminated all of the batters after knocking every bowler out of the stadium. The RBI might have declared victory over inflation was close at hand, but they decided to aim for total containment.