The Reserve Bank of India (RBI), in its maiden Monetary Policy Committee (MPC) meeting of financial year 2024-25, kept the repo rate unchanged at 6.5% as it sought to maintain its focus on strengthening the economy. This is the seventh consecutive policy meeting where it has chosen to keep the policy repo rate unchanged. That’s because it is treading cautiously since retail inflation has remained above its 4% target, though it was well within the 2% margin at 5.09% in February. Besides, it is also keeping an eye out on the geopolitical tensions in the Middle East.
Inflation was the ‘elephant in the room’ two years ago, RBI Governor Shaktikanta Das said at the post-policy press conference on April 5. “The elephant has now gone out for a walk and appears to be returning to the forest. We would like the elephant to return to the forest and remain there on a durable basis.”
But those expecting a rate cut might have to wait a bit longer, experts say. “If rural demand strengthens and there are no adverse surprises in inflation, private consumption is expected to rise, further aiding growth. However, rate cuts remain dependent on announcements by global central banks and the CPI-based inflation aligning with RBI’s 4% target on a sustained basis,” says Raghvendra Nath, MD of Ladderup Wealth Management.
The expectation now is for cuts towards the end of this year, when inflation moderates and food inflation is within expected parameters. Currently, food and beverage inflation remains elevated, with an 8.66% increase in February. The recent uptick in global commodity prices also warrants close monitoring, with prices of Brent crude and industrial metals rising 4.4% and 5.5%, respectively, since the MPC’s previous meeting in February. The RBI is also gauging the impact of previous rate actions and economic data before contemplating adjustments.
One section that could benefit from the stable rates is home loan borrowers, experts say. “A stable repo rate signals consistency in interest rates for borrowers, providing assurance regarding steady loan interest rates. Stable interest rates enhance affordability for potential homebuyers and foster consumer confidence,” said Adhil Shetty, CEO of Bankbazaar.com.
In support of its stance, the RBI has highlighted the resilience of the global economy and the domestic economy witnessing strong momentum, anticipating real GDP growth of 7% for FY25. Deepak Sood, Senior Partner and Head of Fixed Income at asset management firm Alpha Alternatives, says, “The policy stance is firmly anchored towards ensuring medium-term price stability and supporting an inclusive and sustainable growth trajectory.”
Another measure of note in the MPC meeting was the RBI’s proposal to facilitate cash deposits in cash deposit machines (CDMs) through UPI and to enable UPI payments through Prepaid Payment Instruments (PPI) to enhance convenience and boost adoption of digital payments for small-value transactions.
Das said, “Deposit of cash through CDMs is primarily done with debit cards… It is now proposed to facilitate the deposit of cash in CDMs using UPI.” He further announced the use of third-party UPI apps for payments through PPI wallets, stating, “At present, UPI payments from Prepaid Payment Instruments can be made only by using the web or mobile app provided by the PPI issuer. It is now proposed to permit the use of third-party UPI apps for making UPI payments from PPI wallets.”
Hailing this move, Vivek Iyer, Partner at consulting services firm Grant Thornton Bharat, says, “Enabling UPI for cash deposits is RBI’s focus towards integrating UPI as a part of the entire financial services value chain. UPI access for PPI is a great step towards interoperability across the payment ecosystem. The RBI’s mindset seems to be to broad-base UPI across the ecosystem in order to foster competition and help fuel further innovation.”
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