RBI hikes repo rate by 50 basis points to 5.9%

Repo rate raised to 5.90%

The repo rate, the rate at which RBI lends money to commercial banks, has been hiked again by 50 basis points. Keeping in view the current unfavorable global environment, resilience in domestic economic activity, uncomfortably high inflation level, RBI has increased the policy repo rate by 50 basis points to 5.40%.

Consequently, the Permanent Deposit Facility (SDF) rate stands adjusted to 5.65% and the Marginal Standing Facility (MSF) rate and the Bank Rate to 6.15%. RBI Governor Shaktikanta Das said the monetary policy committee has decided to focus on the return of housing to ensure that inflation remains within the target, while supporting growth.

The Governor’s address can be seen here: https://youtu.be/cb1it7TU8bk

Additional measures:

The governor announced a series of four additional measures, as detailed below.

  1. Discussion Paper to be issued on Probable Loss-Based Approach for Provision of Debt by Banks

Banks currently follow a spend-loss approach, where provisions are made after they are actually stressed, to be replaced by a more prudent approach that requires banks to make provisions based on an assessment of potential loss. is needed.

  1. Discussion Paper on Securitization of Stressed Assets Framework (SSAF) to be released.

Revised Framework for Securitization of Stressed Assets was released in September 2021, it has now been decided to introduce a Framework for Securitization of Stressed Assets, this will provide an alternative mechanism for securitization of NPAs in addition to the existing ARC route.

  1. Internet Banking facility for customers of Regional Rural Banks.

RRBs are currently allowed to provide internet banking facility to customers subject to fulfillment of certain criteria, in order to spread digital banking in rural areas, these norms are being rationalised, revised guidelines to be issued separately .

  1. Regulation of Offline Payment Aggregators.

Online Payment Aggregators (PAs) have been brought under the purview of RBI regulations with effect from March 2020. It is now proposed to extend these rules to offline PAs, which handle proximity/face-to-face transactions. The measure is expected to bring regulatory synergy and convergence on data standards.

Growth Projection – 2022-23. 7.0% for

The Governor pointed out that the central bank’s growth projection for the Indian economy for 2022-23 is projected at 7.0 per cent and for the second quarter at 6.3 per cent; Q3 at 4.6 percent; and Q4: 2022-23 at 4.6 per cent, with risks broadly balanced.

The growth rate for the first quarter of 2023-24 is projected to be 7.2 percent.

The RBI Governor said that economic activity in India has remained stable against the current challenging global environment. “The real GDP in the first quarter of this year was lower than expected, but it is probably the highest among major global economies,” he said.

inflation

Inflation rose to 7.0 per cent in August from 6.7 per cent in July, the RBI governor said. He said global geopolitical developments are weighing heavily on the domestic inflation trajectory.

The RBI Governor said that monetary policy will have to carry forward its calibrated action on policy rates and liquidity position which is in line with the growth dynamics of inflation. He said that it should be alert and agile.

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