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RBI Monetary Policy Meet Announcement: Rates Unchanged for the 9th Consecutive Time

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In a much-anticipated move, the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) has decided to maintain the status quo on key interest rates for the ninth consecutive time. The repo rate remains unchanged at 6.5%, while the stance of 'withdrawal of accommodation' is upheld. This decision, made by a majority vote of 4:2, comes amidst rising food prices and a delicate balancing act between managing inflation and supporting economic growth.

Key Highlights of the RBI MPC Meeting

  1. Interest Rates Unchanged: The MPC has kept the repo rate at 6.5%, the standing deposit facility (SDF) rate at 6.25%, and the marginal standing facility (MSF) rate at 6.75%.
  2. Real GDP Growth Projection: The RBI retains its real GDP growth projection for FY25 at 7.2%. The quarterly growth projections are:
    • Q1FY25: 7.1%
    • Q2FY25: 7.2%
    • Q3FY25: 7.3%
    • Q4FY25: 7.2%
    • Q1FY26: 7.2%
  3. CPI Inflation Forecast: The RBI maintains its CPI inflation forecast for FY25 at 4.5%. Quarterly inflation projections have been adjusted as follows:
    • Q2FY25: 4.4% (up from 3.8%)
    • Q3FY25: 4.7% (up from 4.6%)
    • Q4FY25: 4.3% (down from 4.5%)
    • Q1FY26: 4.4%
  4. Economic Resilience: The domestic growth remains resilient, supported by steady urban consumption and increasing manufacturing demand. However, global growth faces significant challenges due to demographic shifts, geopolitical tensions, and rising public debt.
  5. Foreign Exchange Reserves: India's forex reserves reached a historic high of $675 billion as of August 2, 2024, highlighting the resilience of the external sector.

Commentary from RBI Governor Shaktikanta Das

Governor Das emphasized the importance of maintaining the current monetary policy stance to manage inflation risks while supporting economic growth. The high food prices, driven by poor weather and structural farming issues, are a significant concern. He noted that food inflation, which constitutes 46% of headline inflation, cannot be ignored despite the fall in core inflation.

Focus on Inflation and Growth

The RBI remains committed to aligning inflation to its 4% target on a durable basis. The Governor highlighted the potential relief expected from healthy kharif sowing and an active southwest monsoon. Despite moderated credit growth in some sectors, personal loans continue to grow rapidly, requiring careful monitoring and reassessment of underwriting standards.

Structural and Technological Challenges

The RBI expressed concerns about banks' structural integrity issues as alternative investment avenues attract more retail investors, leading to a drop in bank deposits. Das urged banks to focus on mobilizing household savings and leveraging their vast branch networks. Additionally, the recent global tech outage underscores the need for robust risk management processes to minimize operational disruptions.

Key Announcements and Proposals

  1. Digital Lending Apps: The RBI proposes creating a public repository of digital lending apps to prevent unauthorized lenders.
  2. UPI Tax Payment Limit: The limit for UPI tax payments has been increased from ₹1 lakh to ₹5 lakh per transaction.
  3. Cheque Clearing: Continuous cheque clearing will be introduced to speed up the clearance process to just a few hours.
  4. Credit Information Reporting: The frequency of credit information reporting by credit institutions to credit information companies will increase from a monthly to a fortnightly basis.
  5. Delegated Payments in UPI: The RBI proposes introducing "Delegated Payments" in UPI, allowing primary users to set transaction limits for secondary users on their bank accounts.

Conclusion

The RBI's decision to maintain the status quo on interest rates reflects a cautious approach amidst rising inflation and global economic uncertainties. The focus on managing inflation, supporting economic growth, and addressing structural challenges indicates the central bank's commitment to ensuring financial stability and resilience in the Indian economy.

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

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