RBI Leaves Policy Rates Unchanged, Credit Lines to be Offered at Banks through UPI

Shaktikanta Das, RBI Governor, while delivering the bimonthly Monetary Policy Statement of the Reserve Bank of India has announced that the policy repo rate will remain unchanged at 6.50 percent with readiness to act if the situation warrants. The Governor stated that inflation is above the target and given its current level, the present policy rate will be termed as accommodative.

Puneet Pal, Head-Fixed Income, PGIM India Mutual Fund, said: “A pause not a Pivot - this is how the RBI governor chose to describe the outcome of the MPC meeting today. The MPC today unanimously decided to hold the policy rates while retaining the monetary policy stance at “Withdrawal of accommodation.” The market was divided going into the policy with the swaps market pricing in a 50% probability of a pause. The yield curve has steepened marginally with the 5yr G-sec yield down by 10-11bps and the 10 yr yield down by 6-7 bps. Going ahead, the market will focus on RBI’s liquidity management and global yield movement. Supply pressure can negate any meaningful downside in yields and we expect the benchmark 10 yr bond to trade in a broad range of 7.00% to 7.40% over the next one quarter.”

Along the same lines, Ajit Banerjee, CIO, Shriram Life Insurance, said: “RBI took the market by surprise – a pleasant surprise though – by taking a unanimous decision in going for a pause from hiking rate in Apr '23 MPC and maintaining the policy stance to be withdrawal of accommodation. The MPC opines that the rates are still in the accommodative zone and hence stance has been maintained on withdrawal of accommodation. The majority of the market participants and economists had factored in a 25 bps rate hike and possible change of stance but the MPC took everyone by surprise on both the heads. The market has welcomed this unanimous decision of RBI and both the debt and equity market reacted positively to it.”

However, Banerjee went on to add: “However, what should not be ignored from the Governor's speech is his emphasis on the words that today’s pause doesn’t mean it’s a prolonged pause, it is just a pause for this meeting only. Therefore, if need arises, and situation demands due to underlying compulsions in future, rate hike can be resumed. Emphasis was also laid on the fact that war against inflation is far from over and necessary action to control may be required to be taken if deemed necessary. The revised GDP growth estimate for FY 24 was projected at 6.5% as against previous estimate of 6.4% and revised headline CPI levels for FY 24 was projected at 5.2% against previous forecast of 5.3%.”

Credit Lines at Banks through the UPI

The Governor highlighted the significant impact of the Unified Payments Interface (UPI) in revolutionizing retail payments in India. He also acknowledged how the UPI's resilience has facilitated the creation of new products and features over time. In a recent announcement, the Governor revealed that the UPI's scope will be broadened by enabling banks to operate pre-approved credit lines through the UPI. This move is anticipated to stimulate further innovation, according to the Governor.