Repo Rate Unchanged At 6.5%; You Can Soon Make UPI Payments Through conversations

New Delhi: For the third time in a row, the Monetary Policy Committee (MPC) of the Reserve Bank of India on Thursday decided unanimously to keep the policy repo rate unchanged at 6.50%, which is being seen as a cautious approach to manage inflation and support the economy.

The repo rate is the interest rate at which the RBI lends money to commercial banks.

RBI governor Shaktikanta Das said that the central bank has also kept the withdrawal of accommodation stance unchanged while emphasising the need to move towards the Committee’s primary target of 4% retail inflation.

ICCR

The banks have been directed to maintain a 10% incremental cash reserve ratio (ICRR) from August 12 as part of RBI’s efforts to drain excess liquidity from the banking system following the withdrawal of the Rs 2,000 currency note. “The ICRR is a purely temporary measure and considered necessary in the background of the liquidity overhang,” Das said.

He further highlighted that the central bank considered imposition of ICRR desirable in interest of financial and price stability and banks will have enough liquidity to do their lending operations. “It will have an impact on inflation also.”

INFLATION

Inflation likely to shoot up in July to Sept, due to upturn in food inflation. The central bank has increased its CPI (consumer price index) inflation forecast for FY24 to 5.4% from 5.1%. For the second quarter, the RBI has projected the CPI inflation to be at 6.2%, followed by 5.7% in the third quarter and 5.2% in the fourth quarter. It further projected CPI inflation to be at 5.2% in the first quarter of FY25.

Das noted that headline (retail) inflation is still above the target as per the latest data and is expected to remain so according to the RBI’s projections for 2023–24. “The month of July has witnessed accentuation of food inflation, primarily on account of vegetables. The spike in tomato prices and further increase in prices of cereals and pulses have contributed to this. Consequently, a substantial increase in headline inflation would occur in the near term,” he said.

He added that vegetable prices may see significant correction after a few months.

GDP GROWTH

The RBI governor said that Real GDP growth in 2022–23, on the other hand, turned out to be stronger than anticipated and is holding up well. “India is contributing approx 15% to global growth. The real GDP growth for the year 2023-24 is projected at 6.5% with Q1 at 8%, Q2 at 6.5%, Q3 at 6%, and Q4 at 5.7%.”

He further said that India’s strong macroeconomic fundamentals have led to strong growth.

UPI PAYMENTS

The RBI governor also announced several measures to boost UPI payments. These included raising the transaction limit on UPI lite from Rs 200 to Rs 500 while the total limit of UPI Lite balance for an on-device wallet is Rs 2,000 at any point in time. Das also said that offline payments via UPI will to be introduced soon and that conversational payments will be enabled on the platform, which will allow users to engage in natural language conversations with an AI-driven system, streamlining the process of initiating and completing transactions.

It will be initially launched in Hindi and English and this feature is anticipated to redefine the user experience, making digital transactions even more seamless and user-friendly. The National Payments Corporation of India (NPCI), the driving force behind UPI, is expected to issue instructions to implement Conversational Payments shortly.