• Reserve Bank of India (RBI) increased the repo rate by 50 basis points to 5.4%.
• prolonged high inflation could harm growth in the medium term
• Real GDP growth projection for 2022-23 is maintained at 7.2%
• RBI is also focusing on the development of the Bharat Bill Payment System (BBPS) platform.

To combat rising inflation, the Reserve Bank of India (RBI) increased the repo rate by 50 basis points to 5.4%. Inflation is projected to be 6.7% in 2022-23, with Q2 at 7.1%, Q3 at 6.4%, and Q4 at 5.8%, with risks evenly balanced. CPI inflation is expected to be 5.0 percent in Q1:2023-24.

On August 3 and 5, the monetary policy committee (MPC) met to review the macroeconomic situation. The MPC unanimously decided to raise the policy repo rate by 50 basis points to 5.4%. As a result, the standing deposit facility (SDF) rate has been adjusted to 5.15 percent, while the marginal standing facility (MSF) rate and the Bank Rate have been adjusted to 5.65 percent. The MPC also decided to maintain its focus on withdrawing accommodation in order to keep inflation within target while supporting growth in the future.

The MPC noted that domestic economic activity is resilient and progressing broadly in line with the MPC’s June resolution. Consumer price inflation has slowed since its peak in April, but it remains uncomfortably high and above the target’s upper limit.

The MPC emphasised that prolonged high inflation could harm growth in the medium term.

Global forces, such as protracted geopolitical tensions, rising global financial market volatility, tightening global financial conditions, and global recession risks, are weighing on the domestic economy. Taking all of these factors into account, the real GDP growth projection for 2022-23 is maintained at 7.2%, with Q1 at 16.2%, Q2 at 6.2%, Q3 at 4.1%, and Q4 at 4.0%, with risks broadly balanced. Real GDP growth is expected to be 6.7% in Q1:2023-24.

Furthermore, the RBI is concentrating on the development of the Bharat Bill Payment System (BBPS) platform. It will be a platform for standardised bill payments that is interoperable. This has completely transformed the bill payment experience for Indian users. The system includes over 20,000 billers and processes over 8 crore transactions per month. It is now being proposed that BBPS accept cross-border inward bill payments. This will allow Non-Resident Indians (NRIs) to pay utility bills, education bills, and other bills on behalf of their families in India.

The RBI also intends to form a committee to conduct an in-depth examination of issues concerning the development of India’s interest rate derivatives (IRD) market, including the need for a transition to an alternative benchmark for MIBOR.

Galactik Views