Shaktikant Das,Governor,Reserve Bank of India
Annual retail inflation remained below the central bank’s target of 4% for a second consecutive month, clocking in at 3.65% in August but higher than the revised 3.60% in July and economists’ forecast of 3.5%
MUMBAI: The Reserve Bank of India (RBI) kept its key interest rate unchanged on Wednesday as widely expected, but changed its policy stance to “neutral”, opening the door for rate cuts amid early signs of a slowdown in the economy.
Annual retail inflation remained below the central bank’s target of 4% for a second consecutive month, clocking in at 3.65% in August but higher than the revised 3.60% in July and economists’ forecast of 3.5%.
The central bank expects GDP growth in the current financial year at 7.2%.
“The monetary policy action today reflects the MPC’s assessment that, at the current juncture, it would be appropriate to have greater flexibility and optionality to act in sync with the evolving conditions and the outlook. We stand unambiguously committed to ensure durable alignment of inflation with the target, while supporting growth,” said RBI Governor Shaktikant Das while announcing the monetary policy.
“Domestic growth has sustained its momentum, and the global economy has remained resilient since our last meeting. However, downside risks persist due to geopolitical conflicts, financial market volatility, and elevated public debt. On a positive note, world trade is showing signs of improvement,” said Das.
The prevailing and expected inflation-growth balance have created conditions for a shift in the monetary policy stance, Das said announcing the rate decision.
There is greater confidence on the last mile of disinflation, Das said, while adding that significant risks persist from adverse weather conditions, geopolitical conflict and the recent increase in some commodity prices.
The Monetary Policy Committee (MPC), which consists of three RBI and three external members, kept the repo rate unchanged at 6.50% for a tenth straight policy meeting.
The committee, however, changed its policy stance to “neutral” from “withdrawal of accommodation”.
The central bank expects inflation to average 4.5% in the financial year 2024-25, unchanged from the forecast provided at the August meeting.
The MPC retained its real Gross Domestic Product (GDP) forecast at 7.2% for FY25. With this, the RBI has now pegged growth rate for Q2 at 7% (reduced from 7.2%), Q3 at 7.4% (up from 7.3%%) and Q4 at 7.4%. For Q1 FY26, the growth rate was kept at 7.3%.
Annual retail inflation remained below the central bank’s target of 4% for a second consecutive month, clocking in at 3.65% in August but higher than the revised 3.60% in July and economists’ forecast of 3.5%.
Today, the Indian economy presents a picture of stability and strength. The balance between inflation and growth is well-poised. India’s growth story remains intact. Inflation is on a declining path, although we still have a distance to cover. The external sector demonstrates the strength of the economy. Forex reserves are scaling new peaks. Fiscal consolidation is underway,” said Das.
“The financial sector remains sound and resilient. Global investor optimism in India’s prospects is perhaps at its highest ever. We are, however, not complacent, especially amidst rapidly evolving global conditions,” RBI Governor outlined.
Five out of six members vote in favour of holding rates.
Rates were predicted to be kept on hold by 80% of the 76 economists polled by Reuters.
The MPC last changed rates in February 2023, when the policy rate was raised to 6.50%.
India’s benchmark 10-year bond yield fell 5 basis points to 6.7392%, on the change in stance.
Equity index Nifty 50 was up 0.67% at 25,177.5 points, while the S&P BSE Sensex added 0.55% to 82,080. The benchmarks were up 0.2% each ahead of the policy decision.
The Indian rupee was flat at 83.9450 against the dollar.
While the recent escalation of tensions in the Middle East has shrouded the outlook on the inflation trajectory, concerns about economic growth have also begun to emerge.
High-frequency indicators such as the manufacturing PMI slowed to an eight-month low in September, while the services PMI eased to a 10-month trough, latest data showed. India’s overall growth slowed to 6.7% in the June quarter.
UPI – Enhancement of Limits
UPI has transformed India’s financial landscape by making digital payments accessible and inclusive through continuous innovation and adaptation. To further encourage wider adoption of UPI and make it more inclusive, it has been decided to (i) enhance the per-transaction limit in UPI123Pay from ₹5,000 to ₹10,000; and (ii) increase the UPI Lite wallet limit from ₹2,000 to ₹5,000 and per-transaction limit from ₹500 to ₹1,000.
Introduction of Beneficiary Account Name Look-up Facility
At present, UPI and Immediate Payment Service (IMPS) provide a facility for the remitter of funds to verify the name of the receiver (beneficiary) before executing a payment transaction. It is now proposed to introduce such a facility for the Real Time
Gross Settlement System (RTGS) and the National Electronic Funds Transfer (NEFT) system.
This facility will enable the remitter to verify the name of the account holder before effecting funds transfer to him/her through RTGS or NEFT. This will also reduce the possibility of wrong credits and frauds.