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RBI Holds Steady on Repo Rate, Proposes UPI Expansion in Recent MPC Meet

The Entrepreneur Bytes Team December 8, 2023 39

Reserve Bank of India (RBI) Governor Shaktikanta Das concluded the latest Monetary Policy Committee (MPC) meeting by affirming the resilience of India’s economic fundamentals amidst a backdrop of global uncertainties. The three-day deliberation culminated in decisions that reinforce the country’s economic trajectory while addressing key areas of concern.

Economic Stability and Growth Projections

Governor Das emphasized the robustness of India’s economic foundation, citing healthier bank and corporate balance sheets, on-track fiscal consolidation, manageable external balances, and substantial forex reserves acting as a safeguard against external shocks. This, combined with burgeoning consumer and business optimism, sets the stage for sustained economic growth. Looking forward, Das reiterated the intent to fortify these fundamentals as a potent defense against global volatility.

Monetary Policy Highlights

The RBI affirmed its policy stance of gradually withdrawing accommodation to align inflation with its target of 6% (+/-2) while supporting economic expansion. This signifies the central bank’s focus on regulating the money supply to curb inflationary pressures.

The key decisions from the MPC meeting encompass various aspects:

Unchanged Repo Rate: The benchmark interest rate stands firm at 6.5%, underscoring the RBI’s commitment to managing inflation while fostering credit and investment growth crucial for economic revitalization.
UPI Transaction Limit Increase: A noteworthy proposal involves elevating the transaction limit for Unified Payments Interface (UPI) payments to hospitals and educational institutions from ₹1 lakh to ₹5 lakh, potentially streamlining financial transactions in crucial sectors.
Revised GDP Projections: The RBI revised the GDP growth projection for the current fiscal year to 7%, an upward revision from the earlier 6.5%. It also outlined growth estimates for subsequent quarters pegged at 6.5% and 6% for December and March, respectively.
Inflation and Forex Reserves: The average retail inflation projection for 2023-24 remains at 5.4%, but uncertainties in food prices could significantly influence inflation outlook. Governor Das cautioned about intermittent shocks in vegetable prices, potentially impacting headline inflation in the months ahead. However, the confidence in substantial forex reserves, standing at $604 billion as of December 1, assures meeting external financing requirements comfortably.

Implications and Future Prospects

The decision to maintain the status quo on the repo rate signals a cautious approach by the RBI, balancing inflation concerns with the imperative to foster economic growth. The proposed expansion of UPI transaction limits aims to facilitate smoother financial transactions in critical sectors like healthcare and education.

With a revised upward GDP growth projection and the assurance of substantial forex reserves, India’s economic landscape appears poised for resilience amid global uncertainties.

The RBI’s strategic decisions underscore a proactive stance aimed at steering the economy through potential challenges while nurturing the conditions for sustained growth. As the global economic landscape continues to evolve, these measures seek to fortify India’s position as a beacon of stability in an uncertain world.

Sources By Agencies