RBI MPC decision HIGHLIGHTS: A push for banks to increase lending rates, an FAQ for Paytm customers and more

“By keeping the monetary policy unchanged, the RBI today clearly distinguished between the “needs” & the “wants” of the bond market. The RBI appropriately maintained the monetary policy discipline & assertively indicated its preference to remain on hold till they get more confidence on sustainably reaching their inflation target. We believe it’s more important to focus on magnitude of rate cuts rather than timing. We continue to believe that conditions for fixed income are increasingly turning favourable & we continue to expect 50-75bps rate cuts for CY24.”

“The benchmark interest rate remained unchanged at 6.5% in the RBI’s most recent monetary policy announcement today. The RBI decided not to change the rates at this time because retail inflation for FY24 was 5.4%, above the targeted rate of 4%. A rate reduction in FY25 appears likely given the upcoming MPC meeting, which is set for April 3-5, 2024, and the anticipated cooling of retail inflation to 4.5% in FY25.”

“The MPC meeting today maintained the status quo on policy rates and the monetary policy stance. Some sections of the market were expecting a change in stance which did not materialize though, in our view, the policy was dovish as Prof Jayant Varma voted for a rate cut and with the governor highlighting the underlying financial stability and FY25 Inflation forecast at 4.50% which is 200 bps below the policy repo rate. We think the monetary policy stance will be changed in the next MPC Policy in April 2024.”

Lakshmi Iyer, CEO-Investment & Strategy, Kotak Alternate Asset Managers Limited said, “Status quo in rates and stance in line with our and market expectations. No major worries expressed on inflation front is comforting, but for food price fluctuations – the watch for global cues however continues. While FY 25 inflation forecast is at 4.5%, as per RBI the last mile walk is very crucial, hence the walk towards headline CPI of 4% is key for RBI.

Liquidity life line from RBI to the banking system may continue as Q4 tends to be tight one due to advance tax outflows, as also the impending general elections, which could also see currency in circulation going up. We expect bond yields to trade in a tight range tracking US bond yields. Foreign buying of govt bonds is likely to keep buoyancy in bond yields intact, despite near term upticks if any. Investors may look to add duration to ones fixed income portfolio on price dips.”

“RBI’s policy was on expected lines with a focus on bringing inflation towards a targeted range of 4%. Monetary policy stance and steady rates over the last one year have helped maintain healthy growth momentum while lowering inflationary pressures. Going forward, we believe that as inflation nears RBI’s 4% goal, space for monetary easing would open up in the coming quarters, to support lower interest rates and credit demand.”

India’s banking system needs ₹3.5-4 lakh crore cash next financial year ending March 2025, according to R Sivakumar, Head Fixed Income, Axis AMC. Of that, he estimates, ₹2 lakh crore will come once India’s bonds included in the JPMorgan global index. “We still need somewhere in the range of 1 to 2 lakh crore of excess liquidity that the RBI will have to figure out some way of infusing,” he said responding to Governor Shaktikanta Das perceived reluctance to ease the liquidity deficit in the system right now. One that, Das acknowledged, has come about for the first in time over four years. 

“There were issues of compliance on not just KYC but many aspects of regulatory requirements,” RBI Deputy Governor Swaminathan J said. Read on to know more.

“There were issues of compliance on not just KYC but many aspects of regulatory requirements,” RBI Deputy Governor Swaminathan J said. Read on to know more.

Axis Bank, Punjab National Bank (PNB), HDFC Bank, and IndusInd Bank have all adjusted their FD rates. These changes came in before the RBI monetary policy review. Check which one offers a better deal for savers.

Some of the charges levied by banks are one time while others are recurring charges that may levied every year. Lenders may have to specify the impact of the recurring charges too. Read more about the incoming regulation here.

“Why should we act if an entity complies with regulation? We are a responsible regulator,” says RBI Governor Shaktikanta Das. Read the full text of his response to the question about what went wrong at Paytm.

Among additional measures, Das said SMS-based OTP has become very popular as AFA (additional factor of authentication) and therefore to enhance security of digital payments, the MPC has proposed to put in place a principle based framework for authentication.

In a move aimed at enhancing transparency and ensuring borrowers are well-informed about the true costs of loans, the Reserve Bank of India (RBI) has directed all lenders to issue a ‘Key Fact Statement’ (KFS) for all retail and Micro, Small & Medium Enterprises (MSME) loans.

The statement is mandated to disclose processing fees and additional charges associated with the loans.

Here’s what experts have to say about the move

“Policy is on very expected lines and we are seeing very good growth, not only overall but also in terms of the corporate segment. So this policy is supportive of that. As long as the policy is stable and predictable, that is what the industry and banks and everybody wants. So it is a good policy,” says SBI’s Ashwini Kumar Tewari.

“I had clearly made the point that if RBI changes the stance, it is not just related to liquidity, it is also related to the rate so that in one way would be giving a signal that RBI is ready to cut rate sometime in the next few quarters which RBI probably doesn’t want to indicate at this stage. So, I’m not at all surprised by keeping the stance unchanged,” said Kaushik Das, Chief Economist, Deutsche Bank

Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank, said that it is a fairly balanced policy and highlighted that the governor has reiterated the central bank’s focus on attaining disinflation. “So the 4% target is which they are very focused on. When that comes against the backdrop of an upward revision to the FY25 GDP growth forecast, we need to really watch it very carefully.”

“That space is going to be very crucial because it means somewhere directionally that markets wherein they were pricing an early change in withdrawal of accommodation stance or an early rate cuts, there is some more room before RBI gets comfortable with that approach,” she said.

Rate change looks unlikely to Bhardwaj in the first half of the next fiscal. “Growth being very robust and at the same time, inflation looking benign, but yet not closer to 4%, all-in-all this is a very balanced policy.”

Among additional measures, Das said SMS-based OTP has become very popular as AFA (additional factor of authentication) and therefore to enhance security of digital payments, the MPC has proposed to put in place a principle based framework for authentication.

Resident entities allowed to hedge price of gold in OTC segment in IFSC.

RBI MPC has decided to allow resident entities to hedge price of gold in OTC segment in IFSC.

Das noted that the exchange rate of Indian Rupee is market determined and that it has been the least volatile in 2023-24.

This will help borrowers make an informed decision. Banks will be given some time to make the process of lending more transparent.

This will help borrowers make an informed decision. Banks will be given some time to make the process of lending more transparent.

RBI is looking to review the regulatory framework for electronic trading platforms which was last updated in 2018.

The revised norms will be shared with stakeholders for feedback.

As of Feb 7, the Indian rupee has remained stable compared to both EM peers and those from advanced economies… The relative stability of rupee in recent period reflect the strength and stability of Indian economy, sound policies, and financial stability.