Apex bank maintains status quo on rates, GDP growth pegged at 7.4%
Mumbai : The Reserve Bank of India (RBI) on Thursday stuck to the widely expected status quo in key rates citing uncertainties over inflation, which may be fuelled by rising crude oil prices, fiscal slippages and higher prices of foodgrain.
The RBI kept its policy repo rate unchanged at 6 per cent for the fourth straight meeting. That level is the lowest since November 2010.
The reverse repo, rate at which it borrows from banks and absorbs excess liquidity, will remain at 5.75 per cent.
The Monetary Policy Committee (MPC) headed by RBI Governor Urjit Patel lowered retail inflation target for the first half of current fiscal to 4.7-5.1 per cent on sharp moderation in food price rise.
The panel expects the growth rate to accelerate to 7.4 per cent in 2018-19, up from 6.6 per cent last fiscal, ended March 31, mainly on account of revival of investment activity.
The status quo policy of RBI will be neutral to the EMIs for housing and vehicle loan borrowers, but banks are free to tinker with both deposit and lending rate depending on their asset liability position.
The decision of MPC is consistent with the neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.
This is the first bi-monthly monetary policy for 2018-19 and the next would be announced on June 6.
The decision of MPC comes against the backdrop of government’s assertion that both the fiscal deficit as well as the revenue shortfall in 2017-18 will be lower than the upwardly revised estimates given in the Union Budget. The government has also announced that its market borrowing would be only Rs 2.88 lakh crore in the April-September period of 2018-19 as against Rs 3.72 lakh crore it had borrowed in the corresponding period of the last fiscal, 2017-18, ended on March 31.
Patel noted that inflation print for February was lower than the expected but the MPC always looks ahead.
“MPC believes there are several uncertainties surrounding the baseline inflation path. First, the revised formula for MSP (minimum support price) as announced in the Union Budget 2018-19 for kharif crops may have an impact on inflation, although the exact magnitude will be known only in the coming months,” he said.
Second, the staggered impact of house rent allowance revisions by various state governments
may push headline inflation up, he said.
Thirdly, he added, in case there is any further fiscal slippage from the Union Budget estimates for 2018-19 or the medium-term path, it could adversely impact the outlook on inflation.
There are also risks to inflation from fiscal slippages at the level of states on account of higher committed revenue expenditure, he said.
Besides, recent volatility in crude prices has imparted considerable uncertainty to the near-term outlook on inflation.
Crude oil prices are hovering around $70 per barrel putting pressure on the government to cut duty on this.
Five members of the panel, including the RBI Governor, voted for a status quo while executive director Michael Patra was the lone member who wanted the key rate to be hiked by 25 basis points.
The mooting of the idea of a central bank digital currency is a futuristic idea. The introduction of a mandatory loan requirement in working capital loans will provide the much-needed credit discipline.
— Rajnish Kumar, Chairman, SBI
The RBI has pared its inflation projection for the fiscal year 2018-19 with upside risks even as the projection for economic growth has been raised. The central bank’s future actions will depend on the forthcoming inflation and growth data.
— Chandra Shekhar Ghosh, MD & CEO, Bandhan Bank
Access to non-residents into the IRS Market and introduction of rupee swaptions are additional measures in the policy to aid better interest rate risk management by banks.
— Usha Ananthasubramanian, Chairman, IBA
I believe the growth baton is now firmly in government’s hands as it is actively facilitating the revival of private investments. Additionally, with improvement in momentum of the asset resolution process, growth appetite should get ploughed back.”
— Rana Kapoor, MD & CEO, YES Bank
The IndAS implementations have been deferred by one more year, which will give the banks some time to align with the required changes. The intent of the policy seems neutral and sends signals for supporting growth in near-term.
— Dinabandhu Mohapatra, MD & CEO, Bank of India
This was almost like an accommodative stance without actually producing a rate cut. Given the expectations that were built around it, it is more like a change in their stance, tone and tenor and so on.
— Abheek Barua, chief economist , HDFC Bank.
Digital currencies on cards
MUMBAI: The RBI tightened the rules to discourage use of virtual currencies like Bitcoins and also announced a study to explore introduction of ‘fiat’ digital currencies which can be issued by it. An interdepartmental group has been constituted to study and provide guidance on the “desirability and feasibility” to introduce a “central bank digital currency” and will submit its report by June, the central bank said.
“Several central banks are debating the possibility of introducing a fiat digital currency. As opposed to private digital tokens, these are issued by a central bank. They constitute liability of the central bank, and they will be in circulation in addition to the paper currency that we have,” Deputy Governor B P Kanungo said. “We have decided to ring-fence the RBI regulated entities from the risks of dealing with virtual currencies. These operators are required to stop having a business relationship with the entities dealing with virtual currencies forthwith and unwind the existing relationships within three months,” Kanungo said.
Payment system operators told to store data in India
MUMBAI: The apex bank told all payment system operators in India to store data within the country to ensure safety and security of users’ information. The operators will be given six months’ time to comply with the directive of the central bank. “Ensuring the safety and security of payment systems data by adoption of the best global standards and their continuous monitoring and surveillance is essential to reduce the risks from data breaches while maintaining a healthy pace of growth in digital payments,” RBI said. At present “only certain” payment system operators and their outsourcing partners store the system data either partly or completely in India. “In order to have unfettered access to all payment data for supervisory purposes, it has been decided that all payment system operators will ensure that data related to payment systems are stored only inside the country within a period of 6 months,” it said.
Switch back to GDP to gauge economy
MUMBAI: The RBI switched back to the GDP-based measure to offer its growth estimates from the gross value added (GVA) methodology, citing global best practices. The government had started analysing growth estimates using GVA methodology from January 2015. Deputy governor Viral Acharya said the switch to GDP is mainly to conform to international standards. “This is also the approach followed by multilateral institutions, international analysts and investors, and primarily they all stick to this norms because it facilitates easy cross-country comparisons,” Acharya said.
Banks get 1 more year to adopt Ind AS
MUMBAI: The RBI deferred the implementation of the Indian Accounting Standards (Ind AS) by one year as many banks are not prepared to migrate to the new accounting system. The earlier deadline for banks to switch to the Ind AS was from April 1 2018. “But our assessment is that many banks are still not prepared to move to Ind AS. So, we thought that we should defer this by one year and by when the preparedness and amendments to the schedule to the act are also there,” said deputy governor NS Vishwanathan.
