Reserve Bank of India surprised on policy day

06/04/2023

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Reserve Bank of India surprised on policy day

The Monetary Policy Committee (MPC) of RBI has broke its hiking rate intermission and retained the repo rate at 6.5% which is same level taking into account the turmoil caused by global banking crisis and the contagion risks.

The Monetary Policy Committee (MPC) maintained the ‘withdrawal of accommodation’ stance highlighting the readiness to act should the situation so warrant.

Is inflation worries gone?

The India’s central bank, RBI has hiked rates by a total of 250 bps since May, 2022 as part of the inflation fight. However, the panel has pointed out that inflation worries aren’t fully over yet and they will remain cautious ahead.
As we know the retail inflation registered at 6.44 percent in February, down from 6.52 percent in January, but stayed above the central bank’s comfort level of 6 percent.
It has been a challenge of MPC in meeting over its primary mandate as inflation remained above 6 percent level consistently. As per the rules, the MPC will require to report to the government over staying inflation above 6 percent for three quarters in a row.

Growth forecast by RBI:

The Monetary Policy Committee has increased forecast FY24 GDP growth to 6.5% from the previous estimation of 6.4%.
The real GDP growth for the first quarter is forecast at 7.8 percent, for the second quarter is 6.2 percent, for the third and fourth quarters it is 6.1 percent and 5.9 percent, respectively.

RBI permitting credit through UPI:

The Reserve Bank of India’s (RBI’s) governor Shaktikanta Das has informed about the proposal about expanding scope of United Payments Interface (UPI).
To make possible this, RBI permitting operations of pre-sanctioned credit lines by banks through UPI.
At the announcement of RBI’s governor Das, he stated that this initiative will pace the speed of the growth of innovations and widen footprints of UPI.

Benefits of credit line on UPI:

After RBI’s announcement on UPI it will pave the way for borrowers to access digital credit lines from banks. The central bank is likely to create a loan account for payment of UPI.
Borrowers or customers who have no credit card will be able to get short term loan or personal loans via UPI.