RBI Monetary Policy Update: Key Points Simplified

RBI Monetary Policy Update: On October 9, 2023, the Reserve Bank of India (RBI) made important announcements about its monetary policy. Here’s a breakdown of the key highlights:

1. Repo Rate Stays the Same

The RBI has decided to keep the repo rate at 6.5%. This means that the interest rate at which banks borrow money from the RBI will not change. This decision comes even as the US Federal Reserve has reduced its rates. All members of the RBI’s Monetary Policy Committee (MPC) agreed on this, but they shifted their policy stance to "neutral."

2. Inflation Concerns

Inflation remains a major worry for the RBI. The overall inflation estimate for the fiscal year 2025 is still 4.5%. However, the RBI adjusted its projections for specific quarters:

• Q2 FY25: Down to 4.1% from 4.4%.
• Q3 FY25: Up to 4.8% from 4.7%.
• Q4 FY25: Slightly down to 4.2% from 4.3%.
• Q1 FY26: Down to 4.3% from 4.4%.

Governor Shaktikanta Das pointed out that while inflation dropped significantly in July and August, core inflation (excluding food and energy) has risen.

3. Positive Growth Outlook

The RBI remains optimistic about the Indian economy's growth. It forecasts a 7.2% GDP growth rate for FY25. However, they adjusted some quarterly growth expectations:

• Q2 FY25: Down to 7% from 7.2%.
• Q3 FY25: Up to 7.4% from 7.3%.
• Q4 FY25: Up to 7.4% from 7.2%.
• Q1 FY26: Up to 7.3% from 7.2%.

4. UPI Transaction Limits Increased

The RBI has increased the transaction limits for the Unified Payments Interface (UPI):

• The per-transaction limit for UPI 123 Pay is now Rs.10,000, up from Rs.5,000.
• The UPI Lite wallet limit has been raised to Rs.5,000 from Rs.2,000.
• The transaction limit for UPI Lite has increased to Rs.500 from Rs.100.

5. Risks in Unsecured Loans

Governor Das expressed concerns about rising risks in unsecured loans, particularly for consumption and microfinance. He emphasized the need for banks and non-banking financial companies (NBFCs) to carefully evaluate their lending practices and monitor potential risks, such as cybersecurity threats and inactive deposit accounts. Also read: RBI Decisions, Protests, and Election Results: Key Developments on October 10 The RBI's latest monetary policy reflects a careful balancing act between maintaining growth and addressing inflation concerns. The changes in UPI limits and attention to unsecured loans indicate a focus on enhancing digital payments and safeguarding financial stability.