RBI keeps repo rate unchanged; check Growth rate, Inflation forecast, liquidity measures and more

The RBI held its latest Monetary Policy today. The Repo rate, which is the rate at which the RBI provides loans to commercial banks, was kept unchanged at 6.5%. Here are the major highlights:

RBI Monetary Policy July 2023: Repo Rate unchanged

• The Monetary Policy Committee (MPC) decided to keep the benchmark repo and reverse repo rate unchanged
• The repo rate (also known as the short-term lending rate) was last increased in Feb, 2023. Since then, the rate remains at a constant of 6.5%. In the last 5 meetings, the MPC has kept the interest rate unchanged. Repo rate is the rate at which RBI lends money to the banks. 
• The RBI has also kept the reverse repo unchanged at 3.35%. This is the rate which RBI provides to banks to park excess liquidity. 
• The Standing Deposit Facility Rate stands at 6.25%. The RBI introduced the standing deposit facility to absorb surplus liquidity in the system at reduced rates, without requiring banks to provide collateral.
• The Marginal Standing Facility (MSF) will be available at a 6.75% rate, which is 0.25% higher than the repo rate. Through this mechanism, all banks recognized by the RBI can access funds during emergencies, up to 1% of their NDTL (Net Demand and Time Liabilities) or by using their SLR (Statutory Liquidity Ratio) securities.
• The RBI still maintains a ‘withdrawal of accommodation’ stance to maintain adaptability in the face of any unexpected domestic inflation spikes.

RBI Monetary Policy 2023: Update on inflation

• The RBI has increased the inflation estimate of 5.1% to 5.4% for FY24 as food prices rise due to expectation of sub-normal to normal monsoon.
• For Q1FY24, inflation will be 4.6% and 6.2%, 5.7% and 5.2% for Q2FY24, Q3FY24, and Q4FY24, respectively. The Q1FY25 inflation is expected to be 5.2%.
• The RBI Governor commented “While the vegetable price shock may reverse quickly, possible El Niño weather conditions along with global food prices need to be watched closely against the backdrop of a skewed south-west monsoon so far.” as the inflation surged from a low of 4.3% in May 2023

RBI Monetary Policy 2023: GDP growth update

• The GDP growth rate for April-June 2024 would be at 6.6%. 
• The growth rate has been retained at 6.5% for FY24.
• The GDP forecast for Q1FY24, Q2FY24, Q3FY24 and Q4FY24 stood at 8%, 6.5%, 6% and 5.7% respectively

RBI Monetary Policy 2023: UPI

• The MPC proposed a system of ‘Conversational Payments’, which enables users to make conversation with AI-powered systems to make payments.
• It also proposed to introduce offline payments on UPI using Near Field Communication (NFC) technology through ‘UPI-Lite’ on-device wallet.
• The UPI lite transaction limit has been increased to Rs. 500 which was earlier Rs. 200.
• The propositions come with the aim to enhance digital payment services to consumers.

RBI Monetary Policy 2023: Rs. 2000 Notes

• It was decided to withdraw Rs. 2000 denomination currency in May this year and all notes had to be exchanged before Sep 30.
• RBI Governor Shaktikanta Das said that the withdrawal of the ₹2,000 note is temporary. 
• The Governor added that once the complete withdrawal of ₹2,000 denomination from the country, there will be "adequate liquidity" in the system. 

RBI Monetary Policy 2023: Liquidity Measures

• The RBI governor announced that with effect from the fortnight beginning August 12, 2023, scheduled banks shall maintain an incremental cash reserve ratio (I-CRR) of 10 per cent on the increase in their net demand and time liabilities (NDTL) between May 19, 2023 and July 28, 2023.
• This measure is aimed to soak up the excess funds produced for several reasons, including the reintroduction of ₹2000 notes into the banking system.
• The Governor added that these were all temporary measures to manage liquidity overhang.