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RBI Lowers Key Interest Rate Again, Forecasts 6.5% GDP Growth

June 6, 2025, 1:25 pm

The Reserve Bank of India (RBI) surprised markets on Friday by reducing the repo rate by 50 basis points, bringing it down to 5.50%. RBI Governor Sanjay Malhotra made the announcement following the Monetary Policy Committee (MPC) meeting.

This marks the third straight rate cut by the central bank this year. So far in 2025, the RBI has lowered rates by a total of 100 basis points—starting with a 25 bps cut in February, which was the first since May 2020, followed by a similar move in April.

Inflation under control

Governor Malhotra said inflation has dropped sharply, giving the RBI room to support economic expansion. “Inflation has softened significantly,” he stated. He also added that inflation is aligning well with the RBI’s target of 4%, and that core inflation remains under control. Retail inflation fell faster than expected in recent months, hitting a near six-year low of 3.16% in April. This was well below the central bank’s medium-term target.

Growth outlook positive

India’s economy continues to grow at a healthy pace. “India is already growing at a fast pace but aspires to grow at a higher pace,” Malhotra said. The GDP grew 7.4% in the January–March quarter, showing strong economic resilience.

GDP projections

Governor Malhotra shared the RBI’s growth forecast for the current financial year 2025–26. “Real GDP growth rate for this year 2025-2026, is projected at 6.5%, continuing with our earlier forecast, with Q1 at 6.5%, Q2 at 6.7%, Q3 at 6.6%, and Q4 at 6.4%. The risks are evenly balanced,” he said.

RBI Projects 6.5% Growth for India in FY26, Warns of Global Risks

May 29, 2025, 2:52 pm

According to the Reserve Bank of India’s (RBI) most recent annual report, India is expected to continue to be the fastest-growing major economy globally in 2025–26, with a forecast growth rate of 6.5 percent. This optimism stems from a strong economy, a strong financial sector, and ongoing government support in sustainable development.

However, the central bank also issued a warning: global trade conflicts, continuing geopolitical uncertainty, and market volatility could jeopardize both inflation and growth goals.

Domestic Capabilities Drive the Development Forecast

The RBI drew attention to several internal causes driving India’s robust growth. Private spending is consistently increasing. Corporates and banks have good balance sheets, therefore enabling confident lending and investing. Along with softer financial circumstances, the government’s ongoing capital expenditure push keeps supporting economic activity. These drivers advance India ahead of other major countries taken together.

Between 2024 and 2025, the RBI’s financial footprint grew by 8.2 percent; its balance sheet as of March 31, 2025 totaled ₹76.25 lakh crore. The central bank could distribute a historic ₹2.69 lakh crore dividend to the government thanks to this rise. Gold reserves increased by a remarkable 52.09 percent on the asset side, whereas domestic investments rose by 14.32 percent. Foreign investments increased somewhat by 1.70%.

Outstripping a 7.76 percent growth in expenses, the RBI’s income grew 22.77 percent during the year. This produced a sizable surplus of Rs 2.68 lakh crore, up 27.37 percent from Rs 2.10 lakh crore the year before. The document confirms the main duties of the central bank: managing reserves, issuing currency, and guiding monetary policy.

What Lies Behind the Asset and Liability Change?

Currency in circulation jumped by 6.03 percent. Other liabilities increased 23.31 percent, but revaluation reserves climbed 17.32 percent. Domestic assets comprised 25.73% of the RBI’s whole assets as of March 2025. Foreign currency holdings, gold including deposits, and foreign loans to financial institutions made up the other 74.27 percent. This combination reflects a modest change from the ratios of last year.

₹44,861.70 crore was moved this year from the RBI to its Contingency Fund. This initiative improves the bank’s capacity to absorb economic shocks and guarantees preparation in unpredictable times. It also emphasizes the RBI’s deliberate attitude toward harmonizing stability with expansion.

Growth with Vigilance

With the economy expected to head world growth once more in FY26, India’s growth story inspires still. Strong basics at work are shown in the RBI’s report—and a central bank ready to assist the rise of the economy. But with world hazards looming, the true test will be how India negotiates outside shocks while still on track for long-run, inclusive development.

Indian Rupee Set to Reach 84 Against US Dollar by 2025, Say Global Banks

May 22, 2025, 5:02 pm

International banks are becoming increasingly optimistic about the future of Indian Rupee. Prominent lenders such as Bank of America (BofA), ANZ, and MUFG have raised their forecasts, predicting that the rupee will strengthen to 84 against the US dollar by December 2025.

Stronger foreign investment, an improving trade environment, and growing confidence in India’s economic prospects are all factors contributing to their optimistic outlook. Pro-growth policies of the Reserve Bank of India and declining oil prices are also contributing towards making the Indian rupee stronger.

BofA Repurposes Estimate on Rupee Appreciation

BofA Research was the latest to revise its estimate on May 22. It now forecasts the rupee to hit 84 against the US currency at year-end 2025, a sharp upgrade from its earlier estimate of 87. Stronger domestic fundamentals, a pro-growth RBI stance, and a declining US dollar were the three reasons given by the bank for the revision.

BofA also mentioned that after a slow start to the year, foreign equity inflows to India are now picking up steam. Recent RBI interest rate cuts in February and April are expected to boost economic growth and attract foreign investment.

Capital Flows Show a Turnaround

The second quarter is showing signs of recovery after the first quarter’s $13.5 billion outflow by foreign investors. $2.5 billion has already been inflowing, reflecting the revival of investor confidence. Market players are predicting a further 25-basis-point rate reduction in June, which may continue the momentum in capital inflow.

Trade and Oil Price Dynamics Favor the Rupee

Lower international crude oil prices are assisting in enhancing India’s terms of trade. BofA noted that this would help keep the current account deficit within limits, another positive for the rupee. Although there were concerns in the past regarding US tariffs on India, continual trade negotiations have contributed to alleviating such worries.

Other Banks Concur on Rupee Strengthening

BofA’s perception is not unique. MUFG Bank cut its rupee estimate to 84 from 87.5 three weeks ago. Even ANZ now foresees the rupee reaching 86 instead of 88.5 by December-end. HDFC Bank’s Sakshi Gupta also backed the perspective, attributing “a mild appreciation bias” due to falling commodity prices, dollar weakness, and India’s growth prospects.

With several global banks highlighting 84 as the target, the rupee seems to be on a long-term appreciation trend. The sum effect of domestic reforms, RBI actions, and external trade dynamics are all favoring the Indian currency. Yet, global uncertainties and policy changes may still have their impact. For the moment, however, optimism for rupee strength is in full swing.

RBI Pushes for Removal of ‘Vostro’ Account Cap to Boost Rupee-Denominated Trade

May 2, 2025, 2:38 pm

India’s central bank, the Reserve Bank of India (RBI), has asked the government to raise the cap on foreign banks making use of “vostro” accounts to purchase short-term sovereign debt. This would enhance rupee-denominated trade and investment, two sources and a letter to Reuters said. Local banks hold vostro accounts on behalf of foreign banks for them to have rupee-denominated balances arising from trade transactions.

In 2022, foreign banks were permitted by the RBI to open Special Rupee Vostro Accounts (SRVAs) for settlement of trade in rupees. This was an extension of India’s general initiative to internationalize the rupee. The owners of SRVA can invest in government paper without being foreign portfolio investors (FPIs) but the government placed a cap, limiting 30% of account balances for buying securities with residual maturity below one year, including treasury bills.

RBI plans to ease investment rules for Special Rupee Vostro Account holders by exempting them from the 30% cap on short-term government bonds, aiming to boost rupee trade, foreign investment, and financial ties.

More ? https://t.co/g3GUFF9HjK

— BigBreakingWire (@BigBreakingWire) May 2, 2025

Challenges of the Existing Cap

The 30% cap was designed to promote long-term capital inflows and ensure financial stability. The cap, however, currently poses a huge challenge to SRVA holders. The limitation affects those who require immediate access to money since they usually deal with short-term liquidity. According to one source with knowledge of the issue, SRVA holders tend to need easy access to capital, which the existing cap fails to provide.

To deal with these issues, the RBI has suggested removing the cap in a letter to the finance ministry. The central bank opines that relaxing this limitation would promote wider participation in the SRVA mechanism, furthering India’s rupee internationalization process.

Implications for India’s Financial Market

The last word lies with India’s finance ministry. In the words of a second source, easing the cap may invite more players to employ SRVAs. This would improve India’s standing in international trade and finance. As many countries as 30 have opened 123 correspondent banks that have established 156 SRVAs with 26 Indian banks to increase bilateral trade using local currencies.

As of December 2024, the aggregate balance in all vostro accounts, including SRVAs, was 134.55 billion rupees (approximately $1.60 billion). The RBI recently also allowed overseas branches of authorized banks to open rupee accounts for non-resident individuals, enabling smoother settlement of current and capital account transactions.

Moving Towards Currency Globalization

India’s plan to ease investment conditions for foreign banks would make the rupee a stronger global currency. By lifting the cap on SRVAs, India would see increased international participation, enhancing its financial integration and cross-border trade.

Although the decision is in the hands of the finance ministry, this step is in line with India’s long-term objectives of increasing the rupee’s global role and financial market efficiency.

RBI Reduces Repo Rate by 25 bps, Adopts ‘Accommodative’ Policy Stance

April 9, 2025, 10:40 am

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) reduced the policy repo rate by 25 basis points on Wednesday at 10:00 a.m. RBI Governor Sanjay Malhotra announced the cut, bringing the key lending rate down to 6%. This is the first monetary policy in the fiscal year 2025-26 and the second consecutive rate reduction of the calendar year.

Global Trade Unrest Adds Pressure

This policy move was only after US President Donald Trump’s retaliatory tariffs kicked in, including a sharp 104% duty on Chinese imports. Markets across the globe have been on edge ever since, and the Indian central bank has not been spared either.

Trump imposed a 26% tariff on Indian goods from April 9, which could set off new inflationary pressures and decelerate trade sentiment. The RBI, in its policy statement, did recognize these external headwinds with great emphasis, underlining the necessity of acting pre-emptively.

Inflation at 7-Month Low

India’s retail inflation fell to a 7-month low of 3.61% in February 2025, coming in below the RBI’s medium-term target of 4%. This provided room for the central bank to continue easing rates. However, with the fresh tariffs and concerns over global demand, the RBI remains cautious about future price pressures.

#WATCH | Mumbai | RBI Governor Sanjay Malhotra says, ” The MPC (Monetary Policy Committee) voted unanimously to reduce the policy repo rate by 25 basis points to 6 % per cent with immediate effect.”

(Source: RBI) pic.twitter.com/rRVCJiTy0H

— ANI (@ANI) April 9, 2025

Analysts had generally anticipated a rate reduction on Wednesday, spurred by easing inflation and the urgent need to boost economic growth. The MPC had last reduced the repo rate by 25 bps in February, the first such reduction since May 2020, following a gap of two-and-a-half years.

RBI to Release Monetary Policy Report

In addition to the MPC announcement, the RBI will publish its Monetary Policy Report (MPR), which will provide more detailed insights into the central bank’s approach and its economic projections for 2025-26.

Economists have raised alarm over a possible global recession, cautioning that increased costs due to the tariffs would lower demand and damage growth prospects.

Markets Respond to Twin Pressures

Indian stock markets opened lower on Wednesday, reversing morning gains. The Nifty 50 index fell 75.55 points (0.34%) to open at 22,460.30. The BSE Sensex, meanwhile, opened lower by 123.25 points (-0.17%) at 74,103.83.

While the RBI adopts a conservative but growth-focused trajectory, global uncertainties driven by US trade policy continue to pose a threatening risk for emerging nations such as India.

Who is Poonam Gupta? Meet RBI’s Newly Appointed Deputy Governor

April 3, 2025, 6:02 pm

Respected economist and erstwhile World Bank and IMF official Poonam Gupta becomes RBI’s Deputy Governor, bringing in international know-how to India’s economy.

In a significant development, the Indian government has appointed renowned economist Poonam Gupta as the new Deputy Governor of the Reserve Bank of India (RBI) for a three-year term. With decades of experience in international finance and economic policymaking, Gupta’s appointment comes at a crucial time, just days before the RBI’s Monetary Policy Committee (MPC) meeting scheduled for April 7-9.

डॉ. पूनम गुप्ता को उप गवर्नर, भारतीय रिज़र्व बैंक के रूप में नियुक्त किया गया
Dr. Poonam Gupta appointed as Deputy Governor, Reserve Bank of Indiahttps://t.co/2CuOLyVJ2N

— ReserveBankOfIndia (@RBI) April 3, 2025

Presently, she is the Director General of the National Council of Applied Economic Research (NCAER), a prominent economic policy think tank. She succeeds Michael Patra, a seasoned central banker who was the Deputy Governor from January 2020 to January 2025.

Who is Poonam Gupta? A Look at Her Journey

Poonam Gupta has significant experience in economic policy, international finance, and macroeconomic stability. She has headed research on central banking, public debt, economic growth, and state finances as the director of NCAER. Her background in these fields makes her an important figure in advising India’s financial policies at the RBI.

Before joining NCAER in 2021, Gupta served in senior positions at the International Monetary Fund (IMF) and the World Bank for almost two decades. While working in Washington, DC, she worked on economic policies for emerging markets, developing a profound understanding of global finance. She has also been a part of government advisory committees in India, being a member of the Economic Advisory Council to the Prime Minister and convener of the Advisory Council to the 16th Finance Commission.

Her work also included India’s G20 Presidency, where she was the chairperson of the Task Force on Macroeconomics and Trade.

Academic and Research Contributions

Gupta’s academic experience is also of a high caliber. She has worked at top-ranking institutions like the Delhi School of Economics and the University of Maryland (USA) and was a visiting faculty at the Indian Statistical Institute (ISI), Delhi. She has also served in leadership roles as RBI Chair Professor at the National Institute of Public Finance and Policy (NIPFP) and the Indian Council for Research on International Economic Relations (ICRIER).

A prolific writer, Gupta has published close to 50 research papers, several of which have appeared in leading international journals such as The Economist, The Financial Times, and The Wall Street Journal. She co-authored a book on India and China with economist Barry Eichengreen and was awarded the EXIM Bank award in 1998 for her research acumen.

Poonam Gupta is academically qualified with a PhD in Economics, majoring in macroeconomics, international finance, and trade. She also has a dual master’s degree in Economics from the University of Maryland and Delhi School of Economics, as well as a bachelor’s degree from Hindu College, University of Delhi.

Challenges Ahead: Inflation, Economic Growth, and Policy Reforms

Gupta’s appointment occurred at a moment when India had serious economic issues. The economy, while having been estimated to have expanded 6.5% in the fiscal year ending March 31, still lags behind the 9.2% expansion seen in the last fiscal year. At the same time, inflationary pressure and geopolitical risks remain on the horizon.

She has spoken out for a re-examination of India’s inflation-targeting system. In a column after a rate reduction in February, she said, “RBI has been pursuing an old inflation figure and has frequently missed its projection by a wide margin. Inflation expectations of households have continued to be misaligned, and monetary policy transmission has not picked up sufficiently.”

In another column in March, she wrote that the RBI must not indulge in undue exchange rate volatility but that the rupee must be allowed to move more freely than previously. Her views will be important as the MPC sits next week to debate monetary policy actions.

Strengthening the RBI Leadership

With the appointment of Gupta, the RBI has four Deputy Governors, in addition to M Rajeshwar Rao, T Rabi Sankar, and Swaminathan J. Her inclusion adds a worldwide angle to the central banking system of India, as consistent with the changing financial landscape of the nation.

Her deep expertise in macroeconomics, along with her extensive research and advisory experience, makes her a formidable force in shaping India’s monetary policy. As the country embarks on economic revival, Gupta’s views will play a crucial role in tackling inflation, maintaining financial stability, and guiding growth-driven reforms.

Reserve Bank of India Discusses Economic Situation and Appreciates Outgoing Governor’s Service

December 20, 2024, 4:45 pm

The 612th meeting of the Central Board of Directors of the Reserve Bank of India (RBI) took place in Guwahati on Friday, chaired by the newly appointed RBI Governor Sanjay Malhotra. During the meeting, the Board expressed its appreciation for the valuable services rendered by Shaktikanta Das, who served as the Governor for six years until his term ended on December 10.

Shaktikanta Das, a seasoned bureaucrat, led the central bank through significant challenges, particularly during the COVID-19 pandemic. He previously held key positions as Secretary of the Department of Revenue and the Department of Economic Affairs under the Ministry of Finance. Das assumed office as the 25th Governor of the RBI on December 12, 2018, with his term extended in 2021.

In the recent meeting, the Board reviewed the global and domestic economic situation and outlook, discussing the activities of select Central Office Departments as well as the draft Report on Trend and Progress of Banking in India for 2023-24.

The meeting was attended by Deputy Governors Michael Debabrata Patra, M Rajeshwar Rao, T Rabi Sankar, Swaminathan J, and other Directors of the Central Board, including Satish K Marathe, Revathy Iyer, Prof. Sachin Chaturvedi, Venu Srinivasan, and Ravindra H Dholakia. Nagaraju Maddirala, Secretary of the Department of Financial Services, was also present.

Sanjay Malhotra, who previously served as the revenue secretary at the Ministry of Finance, was appointed as the new Governor of the Reserve Bank of India, effective December 11, 2024, for a term of three years. Malhotra is an Indian Administrative Service Officer of the 1990 Batch from the Rajasthan Cadre, holding an Engineering degree in Computer Science from the Indian Institute of Technology, Kanpur, and a Master’s in Public Policy from Princeton University, USA.

India’s Retail Inflation Declines to 5.48% in November, Within RBI’s Comfort Band

December 12, 2024, 5:17 pm

India’s retail inflation in November declined to 5.48% as compared to 6.21% in October, falling within the Reserve Bank of India’s (RBI) comfort band of 2-6%. The decline in inflation is mainly due to the decline in inflation in the food and beverages group.

Rural and Urban Inflation Rates

Corresponding inflation rates for rural and urban areas in November are 5.95% and 4.83%, respectively, according to official data released by the Ministry of Statistics and Programme Implementation. Food inflation in November was at 9.04%, versus 10.87% in October. The decline in food inflation is attributed to a significant decline in inflation in vegetables, pulses and products, sugar and confectionary, fruits, eggs, milk and products, spices, transport and communication, and personal care and effects subgroups.

Top Items with Highest Inflation

The top five items showing the highest year-on-year inflation at an all-India level in November 2024 are garlic, potato, cauliflower, cabbage, and coconut oil. The key items having the lowest year-on-year inflation in November are jeera, ginger, LPG-excluding conveyance, and dry chilies.

Food prices continue to remain a pain point for policymakers in India, who aim to bring retail inflation to 4% on a sustainable basis. However, the latest inflation data suggests that inflation is under control.

The RBI has kept the repo rate elevated at 6.5% to keep inflation contained. The repo rate is the rate of interest at which the RBI lends to other banks. Inflation has been a concern for many countries, including advanced economies, but India has largely managed to steer its inflation trajectory quite well.

Meet Sanjay Malhotra: The New Governor Of The Reserve Bank Of India

December 10, 2024, 12:14 am

The Government of India has appointed Revenue Secretary Sanjay Malhotra as the 26th Governor of the Reserve Bank of India (RBI). Effective Wednesday, the Appointments Committee of the Cabinet approved Malhotra’s appointment for a term of three years.

Who is Sanjay Malhotra?

Sanjay Malhotra, an IAS officer from the Rajasthan cadre of the 1990 batch, succeeds Shaktikanta Das, whose term ends on December 10, 2024. He is an engineering graduate in computer science from IIT Kanpur and also possesses a Master’s degree in Public Policy from Princeton University, USA.

Distinguished Career and Experience

Malhotra has accumulated over 33 years of experience in various sectors, including power, finance, taxation, IT, and mining. He is currently the Secretary (Revenue) in the Ministry of Finance. Before this, he served as Secretary in the Department of Financial Services within the same ministry.

Also Read: RBI Launches Podcasts to Enhance Public Communication

Expertise in Finance and Taxation

Recognized for his knowledge in finance and taxation, Malhotra has played a crucial role in shaping tax policy, addressing both direct and indirect taxes. His vast experience positions him well for his duties at the RBI, promoting continuity in policy and governance.

Leadership Transition

Malhotra’s appointment occurs as Shaktikanta Das concludes his term. Das, who assumed office on December 12, 2018, after Urjit Patel’s unexpected resignation, is credited with stabilizing markets during a pivotal time. His leadership represented a significant period in the RBI’s history.

Sanjay Malhotra Appointed New Governor of Reserve Bank of India

December 9, 2024, 5:51 pm

Revenue Secretary Sanjay Malhotra has been appointed as the new Governor of the Reserve Bank of India (RBI), effective Wednesday. The government confirmed the appointment in an official statement, indicating that Mr. Malhotra will serve a term of three years.

Background and Qualifications

Mr. Malhotra is a 1990-batch Indian Administrative Service (IAS) officer from the Rajasthan cadre. He holds a degree in Computer Science from the Indian Institute of Technology, Kanpur, and has earned a Master’s in Public Policy from Princeton University in the United States.

With a career spanning over 33 years, Mr. Malhotra has gained extensive experience across various sectors, including power, finance, taxation, information technology, and mining. Prior to his role as Revenue Secretary, he served as Secretary in the Department of Financial Services.

Expertise in Finance and Taxation

According to information available on the Department of Revenue’s website, Mr. Malhotra has significant expertise in finance and taxation at both the state and central government levels. He has been instrumental in formulating tax policies for both direct and indirect taxes, showcasing his deep understanding of the financial landscape in India.

RBI Deputy Governor Stresses Optimal Communication as Gold Standard for Central Banks

November 22, 2024, 7:50 pm

Reserve Bank of India (RBI) Deputy Governor Michael Debabrata Patra highlighted the importance of optimal communication in monetary policy, describing it as the “gold standard” for all central bankers. Speaking at the ‘High-Level Policy Conference of Central Banks in the Global South’ in Mumbai on Friday, Patra emphasized the delicate balance between transparency and discretion that central banks must maintain in their communication strategies.

Balancing Transparency and Discretion

Patra explained that too much communication could create a “signal extraction problem,” confusing markets, while too little could lead to uncertainty. He underscored that the optimal level of communication ensures clarity without overwhelming stakeholders.

Reflecting on the impact of the global financial crisis (GFC) and the COVID-19 pandemic, Patra noted that these events cemented the role of communication as a critical policy instrument. “Explanation, Engagement, and Education had become the three Es of communication when the pandemic struck,” Patra remarked, noting that central banks had to step in as the first line of defense during periods of high uncertainty, utilizing the lessons learned from the GFC.

RBI’s Evolving Communication Strategy

Patra also outlined the RBI’s approach to monetary policy communication, stating that it is constantly evolving to balance the demands of country-specific stakeholders with global best practices. Notably, he pointed out that unlike some advanced economies, the RBI has refrained from providing explicit forward guidance in recent tightening cycles due to the prevailing uncertainties.

The conference, held as part of the RBI’s 90th anniversary celebrations (RBI@90), brought together central banks from the Global South. The theme of the conference, “Building Synergies,” focused on fostering cooperation across central banking institutions. This conference, held on November 21-22, 2024, is the third international event in a series of conferences and seminars organized by the RBI to mark its anniversary.

Retail Inflation Likely to Breach 6% in October: UBI Report

November 10, 2024, 4:04 pm

Retail inflation in India is expected to surpass the Reserve Bank of India’s (RBI) upper tolerance band of 6% in October, according to a recent report by Union Bank of India (UBI). The report cites continued escalation in food prices and the waning impact of the high base effect as primary drivers for the expected increase, projecting Consumer Price Index (CPI) inflation to hit 6.15%.

Retail Inflation Data Awaited

The official CPI data for October is set to be released on Monday evening. In September, India’s retail inflation stood at 5.49%, up from 3.65% in August, with the rise attributed mainly to higher food prices. This marks a significant jump, with inflation last exceeding the 6% threshold in August 2023.

Monetary Policy Concerns

The UBI report highlighted concerns regarding the inflation trajectory, noting that while the RBI had anticipated a temporary “hump” in October inflation, the extent of the spike might be larger than expected. The report suggests that elevated inflation readings could continue into November, making a rate change in the December policy review unlikely.

“We maintain our forecast of no rate changes in December, with a potential 50 basis points rate cut cycle starting in February 2025,” the report added.

The rebound in food prices, particularly vegetables and edible oils, has been a significant contributor to the recent inflation uptick. Looking ahead, the report noted that the upcoming Kharif harvest season and progress in Rabi sowing will be critical indicators for future price movements.

UBI’s outlook suggests that food inflation may start to ease in the January-March quarter of the current financial year. The typical seasonal drop in food prices during winter, combined with favorable prospects for Rabi crops, could help normalize headline inflation levels.

The report warned of potential upside risks to inflation, including possible disruptions in food supply, imported inflation from edible oils, and trade tariff impacts. Policymakers are closely monitoring these factors, aiming to steer retail inflation towards a sustainable 4% target.

In a bid to curb inflation, the RBI has maintained the repo rate at an elevated 6.5%. The repo rate is the interest rate at which the central bank lends to commercial banks, serving as a key tool in controlling inflation.

Bank Holidays in November 2024: Banks to Close for 13 Days This Month

November 1, 2024, 1:37 pm

The Reserve Bank of India (RBI) has released the list of bank holidays for November 2024, with banks set to close for a total of 13 days. The closures include public and regional holidays along with regular weekly holidays on Sundays and second and fourth Saturdays. Many of these holidays fall under the Negotiable Instruments Act, ensuring no transactions on these days.

This month, banks will observe closures due to major festivals, including Diwali, Chhath Puja, and Guru Nanak Jayanti. However, the holiday schedule varies by state, as different regions observe distinct festivals or traditional events, such as Egaas-Bagwal in Uttarakhand and Kanakadasa Jayanti in Karnataka.

Complete November 2024 Bank Holiday List

November 1: Closed in Tripura, Maharashtra, Karnataka, Uttarakhand, Sikkim, Manipur, Jammu and Kashmir, Meghalaya (Diwali Amavasya/Deepawali).
November 2: Closed in Gujarat, Maharashtra, Karnataka, Uttarakhand, Sikkim, Rajasthan, Uttar Pradesh (Diwali).
November 3: Sunday.
November 7: Closed in West Bengal, Bihar, Jharkhand (Chhath Puja).
November 8: Closed in Bihar, Jharkhand, Meghalaya (Chhath Puja/Wangala Festival).
November 9: Second Saturday.
November 10: Sunday.
November 12: Closed in Uttarakhand (Egaas-Bagwal).
November 15: Closed in multiple states (Guru Nanak Jayanti/Kartika Purnima).
November 17: Sunday.
November 18: Closed in Karnataka (Kanakadasa Jayanti).
November 23: Closed in Meghalaya (Seng Kut Snem), also the fourth Saturday.
November 24: Sunday.

With bank holidays varying widely across India’s states and Union Territories, customers are advised to review the official RBI website for an updated list of holidays in their specific location to avoid inconvenience when visiting branches.

UPI Lite Boost: New Limits And Auto Top-Up Feature Launching Soon!

November 1, 2024, 12:20 am

New Delhi: UPI Lite users can look forward to significant enhancements as the platform implements two crucial updates starting November 1, 2024. These changes, driven by the Reserve Bank of India’s (RBI) latest decisions, aim to improve the payment experience for users across popular platforms like Google Pay, PhonePe, and Paytm.

Increased Transaction Limits

The first major update is an increase in the transaction limit for UPI Lite. Currently, users can make transactions of up to Rs.500 with a maximum wallet balance of Rs.2,000 and a daily spending limit of Rs.4,000. Under the new guidelines, RBI plans to raise the maximum transaction limit to Rs.1,000 and the wallet balance limit to Rs.5,000. This enhancement will enable users to make more substantial payments seamlessly.

Introducing Auto Top-Up Feature

The second update is the introduction of an auto top-up feature, which will also take effect on November 1. This new functionality automatically adds funds to a user’s UPI Lite balance if it falls below a predetermined threshold, eliminating the need for manual recharges. With this feature, UPI Lite users can enjoy uninterrupted payment capabilities without the hassle of constantly checking their balance.

Background on UPI Lite Updates

The auto top-up feature is part of the National Payments Corporation of India’s (NPCI) ongoing efforts to streamline the UPI Lite experience. Previously, UPI Lite required users to recharge their wallets manually from their bank accounts. The introduction of this feature aims to simplify the process and encourage more users to leverage UPI Lite for their small transaction needs.

Recent RBI data highlights a decline in debit card-based transactions, down 8% in September, as UPI payments continue to surge in popularity. With these upcoming changes, UPI Lite is poised to further enhance its appeal and utility for everyday transactions.

As UPI Lite evolves with these new features, users can anticipate a smoother and more efficient payment experience starting November 1, 2024.

Positive Start for Stock Exchanges as Indices Rise in Early Trading

October 10, 2024, 10:19 am

Indian stock markets opened with a slight uptick, reflecting increased investor confidence. Both major indices started the day in positive territory. The Nifty 50 index opened at 25,067.05 points, up by 0.34%, while the BSE Sensex opened at 81,832.66 points, gaining 365.56 points.

Market analysts indicate that volatility continues to characterize the trading environment, suggesting that a level-based trading approach would be prudent for traders. This positive sentiment is partly attributed to the Reserve Bank of India‘s (RBI) recent decision to adopt a neutral stance, which was communicated on Wednesday.

“After an initial rally in the first half of the day, the market faced resistance around the 25,200 and 81,300 levels and experienced a sharp correction in the latter half due to profit booking. The market declined by over 285 points on the Nifty and 950 points on the Sensex from their intraday highs. Given the current market volatility, we recommend that day traders focus on level-based trading strategies,” advised Shrikant Chouhan, Head of Equity Research at Kotak Securities.

Across other Asian markets, positive buying trends were also observed. Japan’s Nikkei 225 index rose by 0.30%, Hong Kong’s Hang Seng index surged by 3.32%, and South Korea’s KOSPI index increased by 0.71%.

In the United States, markets closed higher on Wednesday, with the S&P 500 gaining 0.71% and the Nasdaq rising by 0.60%. A CNN report suggested that Wall Street is increasingly optimistic about avoiding a recession, and investors are looking ahead to the upcoming earnings season for further signs of economic stability.

In contrast, on Wednesday, domestic benchmark equity indices, including the Sensex and Nifty 50, ended the day in negative territory, reversing recent gains as market sentiment shifted following the RBI’s announcement to maintain current interest rates. The Sensex closed down by 167.71 points at 81,467.10, while the Nifty 50 fell by 31.20 points, settling at 24,981.95.

Investors are expected to closely watch upcoming developments both domestically and globally as markets respond to various geopolitical events.

RBI Holds Repo Rate Steady at 6.5% for the 10th Consecutive Meeting

October 9, 2024, 10:25 am

In its monetary policy meeting held on Wednesday, the Reserve Bank of India (RBI) decided to maintain the repo rate at 6.5 percent for the tenth consecutive time. However, the rate-setting panel shifted its stance from ‘withdrawal of accommodation’ to ‘neutral.’

Impact on Borrowers

This decision implies that all external benchmark lending rates linked to the repo rate will remain unchanged, providing relief to borrowers since their equated monthly instalments (EMIs) will not increase.

Nonetheless, lenders may raise interest rates on loans connected to the marginal cost of fund-based lending rate (MCLR), where the full transmission of a 250 basis points hike in the repo rate—implemented between May 2022 and February 2023—has not yet occurred.

Response to Previous Hikes

In reaction to the 250 basis points increase in the policy repo rate since May 2022, banks have adjusted their repo-linked external benchmark-based lending rates (EBLRs) accordingly. The one-year median MCLR of banks has risen by 170 basis points from May 2022 to August 2024.

Inflation Concerns

In August, while keeping the rate unchanged, the RBI’s rate-setting panel expressed concerns regarding persistent food inflation, which could potentially disrupt the disinflation trajectory. The headline inflation rate, as gauged by year-on-year changes in the all-India consumer price index (CPI), increased to 5.1 percent in June from 4.8 percent in May. This rise was primarily attributed to food inflation, which climbed to 8.4 percent in June, compared to 7.9 percent in the previous month. “The food component of retail inflation remains stubborn… food inflation contributed around 70 percent of the overall retail inflation,” stated RBI Governor Shaktikanta Das.

Changes in the Monetary Policy Committee

Last week, the government reconstituted the Monetary Policy Committee by appointing three external members: Ram Singh, Director of the Delhi School of Economics at the University of Delhi; Saugata Bhattacharya, Economist; and Nagesh Kumar, Director and Chief Executive of the Institute for Studies in Industrial Development.

Retail Inflation Falls To 5-Year Low of 3.54% In July 2024

August 12, 2024, 6:19 pm

Retail inflation in India has dropped to a five-year low of 3.54% in July 2024, according to the All India Consumer Price Index (CPI) data released on August 12, 2024. This marks a significant decrease from 7.44% in July 2023 and represents the first time inflation has fallen below the Reserve Bank of India’s (RBI) 4% target since it was established.

Key Highlights:

Urban Inflation: Urban inflation dropped to 2.98% in July 2024, down from 7.20% in July 2023. This decline is attributed to reduced prices in housing, transportation, and food services, which have eased the cost burden for city dwellers.
Rural Inflation: Rural inflation also decreased to 4.10% compared to 7.63% in July 2023. Factors contributing to this decline include lower agricultural product prices and improved supply chain efficiencies that have reduced costs in rural areas.
Impact of Policy Measures: The significant drop in inflation can be attributed to effective monetary policies and fiscal measures implemented by the government and the RBI. These include interest rate adjustments and supply-side interventions that have stabilized prices.
Economic Implications: The reduction in inflation is expected to positively impact economic growth by increasing consumer purchasing power and boosting confidence among investors and businesses. With inflation below the RBI’s target, there is room for potential interest rate cuts that could further stimulate economic activity.
Global Comparisons: India’s inflation rate is now one of the lowest among emerging markets, highlighting the country’s economic resilience amidst global uncertainties. This stability can attract more foreign investments and strengthen India’s position in the global market.
Future Outlook: Analysts suggest that if inflation continues to remain below the RBI’s target, it could lead to further policy adjustments aimed at sustaining economic growth. However, factors such as global oil prices and geopolitical tensions will need to be monitored for potential impacts on inflation trends.

Overall, the decline in retail inflation to a five-year low in July 2024 is a positive development for the Indian economy, reflecting improved price stability and creating favorable conditions for growth and investment.

RBI Announces These Major Changes In UPI Payment This Week

August 11, 2024, 9:46 am

The Reserve Bank of India (RBI) has announced a significant increase in the transaction limit for tax payments through UPI, raising it from ₹1 lakh to ₹5 lakh per transaction. This move, expected to simplify the process of making larger tax payments digitally, was revealed by RBI Governor Shaktikanta Das during the 50th meeting of the Monetary Policy Committee. He mentioned that this increase “will further ease tax payments by consumers through UPI.”

In addition to this, the RBI has introduced a new feature called “Delegated Payments” to UPI. This feature enables a primary user to authorize another individual, referred to as a secondary user, to make UPI transactions from the primary user’s bank account, within a pre-set limit. Governor Das explained that this feature allows the secondary user to conduct transactions without needing a separate bank account linked to UPI. It is anticipated that this innovation will drive UPI adoption, especially among groups such as children and senior citizens who may not have their own bank accounts connected to UPI.

Dilip Asbe, CEO of the National Payments Corporation of India (NPCI), which manages UPI, highlighted the continuous evolution of payment systems in India by commenting on social media, “Never a dull moment for payment systems in India.” Meanwhile, PhonePe co-founder Sameer Nigam lauded the Delegated Payments feature, stating that it “will significantly accelerate UPI adoption by the next 300-400 million Indians.”

RBI Reduces Cheque Clearing Time From 2 Days To Hours, Governor Announces

August 8, 2024, 7:31 pm

The Reserve Bank of India (RBI) is set to make significant changes to the cheque-clearing process, aiming to reduce the time it takes to clear bank cheques to just a few hours. This move is expected to greatly enhance the ease of doing business in India, according to an announcement made by RBI Governor Shaktikanta Das on Thursday.

Currently, cheque clearing through the Cheque Truncation System (CTS) can take up to two working days due to its batch processing mode. Governor Das revealed that the RBI plans to introduce continuous clearing with an ‘on-realisation-settlement’ mechanism in CTS, which will drastically expedite the process.

“This initiative will ensure cheques are cleared within a few hours on the day they are presented, speeding up payments and benefiting both the payer and the payee,” said Das.

Cheque truncation involves replacing the physical cheque with an electronic image that is sent to the paying branch through the clearing house. This electronic image contains key information such as the MICR band, date of presentation, and details of the presenting bank, thereby eliminating the need for the physical cheque to be transported between banks.

By removing the need for physical movement, cheque truncation reduces costs, shortens collection times, and accelerates cheque processing. The CTS system offers quicker and more cost-effective fund realisation for customers compared to traditional methods that relied on physically moving cheques.

Under the grid-based CTS clearing system, all cheques drawn on bank branches within the grid’s jurisdiction are treated as local cheques. This system eliminates outstation cheque collection charges if both the collecting and paying banks fall within the same grid, regardless of their specific city locations.

With these changes, the RBI is poised to significantly improve the speed and efficiency of cheque processing, marking a major step forward in India’s financial infrastructure.

New RBI Rules on ‘Wilful Defaults’

July 31, 2024, 2:25 pm

Under the new RBI guidelines, a “wilful defaulter” is defined as a borrower or guarantor who has committed a wilful default with an outstanding amount of Rs 25 lakh or more.

The Reserve Bank of India has issued a Master Direction on the treatment of wilful defaulters and large defaulters. Under these guidelines, banks and NBFCs must examine the ‘wilful default’ aspect for all non-performing asset accounts with outstanding amounts of Rs 25 lakh and above.

The Master Direction provides a comprehensive framework and procedures for classifying borrowers as wilful defaulters. According to the new guidelines:

A “wilful defaulter” includes:
1. A borrower or guarantor who has committed wilful default with an outstanding amount of Rs 25 lakh or more.
2. For companies, the promoters and directors are considered wilful defaulters.
3. For entities other than companies, those in charge of managing the entity’s affairs are considered wilful defaulters.

A wilful default is deemed to occur when:

1. The borrower defaults on payment obligations despite having the capacity to meet them.
2. The borrower has diverted or siphoned off funds obtained through the credit facility.
3. The borrower has disposed of assets secured for the credit facility without the lender’s approval.
4. The borrower or promoter fails to inject promised equity despite having the ability to do so, especially if the lender has extended loans or concessions based on this commitment.
5. A guarantor defaults if they do not honor the guarantee when invoked by the lender, despite having the means to do so, or has disposed of secured assets without the lender’s approval, or failed to fulfill equity infusion commitments.

Penal Measures for Wilful Defaulters

According to the RBI’s Master Direction, the penal measures for wilful defaulters are as follows:

1. No additional credit facilities will be granted to a wilful defaulter or any entity associated with them.
2. The ban on additional credit facilities will last for one year after the wilful defaulter’s name is removed from the List of Wilful Defaulters (LWD) by the lender.
3. No credit facilities will be granted for floating new ventures to a wilful defaulter or any associated entity for five years after removal from the LWD.
4. Wilful defaulters or associated entities will not be eligible for credit facility restructuring.

RBI Joins Project Nexus: Will Quick, Affordable UPI Payments Abroad Soon Be Possible?

July 2, 2024, 3:14 pm

The Reserve Bank of India (RBI) has recently joined Project Nexus, a multinational initiative aimed at facilitating instant cross-border retail payments. Once Nexus becomes operational in the next few years, it has the potential to revolutionize how Indians conduct international transactions, utilizing the Unified Payments Interface (UPI).

We delve into the details of Project Nexus, exploring its objectives and its potential to enhance the speed, affordability, and transparency of cross-border transactions.

RBI’s Recent Action

On June 30th, the Reserve Bank of India (RBI) signed an agreement in Basel, Switzerland, to join Project Nexus. This move aligns India with Malaysia, the Philippines, Singapore, and Thailand as founding members of this initiative. The objective is to facilitate instant cross-border retail payments by linking domestic instant payments systems (IPSs).

Understanding Project Nexus

Led by the Bank for International Settlements (BIS) Innovation Hub, Project Nexus aims to connect the domestic IPSs of participating countries. Despite existing bilateral collaborations for cross-border payments, the project addresses the limitations of relying solely on individual country efforts, which are often slow, costly, and complex.

If India aims to facilitate seamless cross-border digital payments with five other countries, it currently requires engaging in five separate bilateral dialogues.

However, Nexus’s multilateral approach eliminates these limitations and inefficiencies.

“The platform can be extended to more countries, going forward. The platform is expected to go live by 2026,” the RBI has said.

Benefits of joining Project Nexus extend to the RBI, businesses, and consumers involved in cross-border transactions. Here are the advantages:

Enhanced Speed and Efficiency

Project Nexus significantly reduces transaction times. Domestic payments via FPSs are usually completed within seconds. By integrating these systems, cross-border payments could also be processed in under a minute, contrasting with traditional banking systems that may take hours or days. FPSs operate continuously, 24/7/365, unlike conventional central bank payment systems that operate only during business hours, as reported by BIS.

2. Cost Efficiency

Cross-border payments typically involve significant costs, including fees for currency conversion, message translation, and sanctions screening. Project Nexus aims to mitigate these expenses. Participants in FPSs generally face minimal transaction fees, and by linking these systems, the overall cost structure for cross-border transactions can be minimized. This makes it viable for banks to offer these services even in regions where they lack physical presence or direct partnerships.

3. Improved Transparency

Conventional cross-border payments often lack transparency, with fees accumulating throughout the payment process, creating uncertainty about the final amount received. In contrast, Project Nexus offers enhanced transparency. Fees can be calculated upfront and communicated to the sender before initiating the transaction, ensuring both sender and recipient understand the exact costs involved. Additionally, immediate confirmation or rejection of payments provides a level of assurance absent in traditional systems.

4. Enhanced Global Access

Project Nexus streamlines the process for banks to offer cross-border payment services across a broader spectrum of countries. Traditionally, banks needed to establish and manage correspondent accounts in each target country, a costly and time-intensive endeavor. Nexus eliminates this need by establishing a standardized and scalable framework for linking FPSs, thereby extending the reach of instant payment services.

5. Improved Dependability

Traditional cross-border payments often face delays and potential failures at various stages, leaving both senders and recipients uncertain until issues are resolved. Project Nexus enhances reliability by ensuring payments are swiftly processed or declined, providing immediate feedback and minimizing the risk of transactional delays or losses.

6. Advantages for Businesses

Project Nexus accelerates, lowers costs, and increases reliability of cross-border payments, potentially boosting international trade and commerce. Small and medium-sized enterprises (SMEs) can particularly benefit from reduced transaction expenses and expedited payment cycles, improving cash flow and global competitiveness.

RBI Wins ‘Risk Manager Of The Year Award 2024’ By Central Banking Publication

June 17, 2024, 1:19 pm

The Reserve Bank of India (RBI) has been bestowed with the prestigious “Risk Manager of the Year Award 2024” by Central Banking, a leading London-based publication. This accolade underscores the RBI’s significant strides in fostering a robust risk culture and heightened awareness, reinforcing its pivotal role in maintaining the stability of India’s financial system.

The announcement was made via the RBI’s official account on X, formerly known as Twitter. The post read, “The Reserve Bank of India has been awarded the Risk Manager of the Year Award 2024 by Central Banking, London, UK. RBI was awarded the best risk manager for improving its risk culture and awareness. Executive Director Shri Manoranjan Mishra received the award on behalf of the RBI. #rbi #centralbanking #centralbankingawards.”

The Reserve Bank of India has been awarded the Risk Manager of the Year Award 2024 by Central Banking, London, UK.

RBI was awarded the best risk manager for improving its risk culture and awareness.

Executive Director Shri Manoranjan Mishra received the award on behalf of the… pic.twitter.com/r9nmpWgQqn

— ReserveBankOfIndia (@RBI) June 16, 2024

RBI’s Strategic Measures

In response to the recent global economic turmoil, the RBI adopted a cautious monetary policy approach. Unlike many other central banks that significantly increased interest rates, the RBI opted to keep rates steady. This balanced stance helped prevent stifling economic growth while vigilantly monitoring inflation.

One of the RBI’s innovative measures includes the establishment of a regulatory sandbox. This initiative allows financial technology companies to experiment with new products and services in a controlled environment. By facilitating such experimentation, the RBI can assess potential risks associated with these innovations before they are widely adopted.

Moreover, the RBI has made significant regulatory changes to enhance overseas investment. On June 7, the RBI relaxed overseas investment regulations, clarifying ambiguities for wealthy Indians, business families, and startups aiming to invest in foreign securities, funds, and companies. This move, reported by Mint earlier this month, aims to bolster international investment opportunities while maintaining a firm grip on associated risks.

The “Risk Manager of the Year Award 2024” reflects the RBI’s unwavering commitment to advancing its risk management practices. Through strategic policy decisions and innovative regulatory measures, the RBI continues to safeguard India’s financial stability amidst a dynamic global economic landscape.

Sensex Reaches Record Highs Days After Post-Election Market Crash

June 7, 2024, 4:56 pm

The benchmark Sensex surged by over 1,720 points, marking a remarkable over 2% increase and reaching all-time intraday highs. This significant rise coincided with the Reserve Bank of India (RBI) revising its GDP growth projection for 2024-25 from 7% to 7.2%.

The 30-share BSE Sensex soared by 1,720.8 points, hitting an unprecedented peak of 76,795.31 during the day’s trading session. Concurrently, the NSE Nifty witnessed a substantial increase of 498.8 points, reaching 23,320.20.

Following the June 4 counting day, when the stock market faced a significant downturn, the BSE benchmark has experienced a remarkable surge of 2,995.46 points or 4.15% over the past two days.

Despite the economic uncertainty, the RBI opted to maintain the policy rate unchanged for the eighth consecutive time, emphasizing its commitment to closely monitor inflationary trends.

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RBI Policy Panel Keeps Repo Rate Unchanged. Here’s Why?

June 7, 2024, 2:22 pm

Interest rates in the financial system are expected to remain steady, with the Reserve Bank of India (RBI) maintaining the repo rate at 6.4 per cent for the eighth consecutive time. Persistent food inflation continues to keep retail inflation high. The RBI’s Monetary Policy Committee (MPC), which met from June 5 to June 7, also left the monetary policy stance unchanged at “withdrawal of accommodation.”

What is the Repo Rate?

The repo rate, or repurchase rate, is the interest rate at which a country’s central bank lends money to commercial banks. It is a key monetary policy tool central banks use to control liquidity, manage inflation, and stabilize the currency.

Why Was the Rate Kept Unchanged?

The policy panel kept the repo rate unchanged in a 4:2 majority decision as inflation remains above the 4 per cent target. Under the flexible inflation targeting regime, the RBI aims to maintain consumer price-based inflation (CPI) within the 2-6 per cent range. Notably, India’s retail inflation rate was 4.83 per cent in April 2024, slightly down from 4.85 per cent in March 2024.

MPC members appeared cautious about sticky food inflation due to supply-side disruptions caused by ongoing hot weather conditions in many parts of India. The MPC is likely to monitor the progress of the monsoons and the sowing of the summer (Kharif) crop to assess the food inflation trajectory in the second half of 2024, before considering any monetary policy easing.

Shaktikanta Das Set to Announce Monetary Policy at 10 AM Today

June 7, 2024, 9:21 am

RBI Governor Shaktikanta Das is set to present the second bi-monthly monetary policy for 2024-25 at 10 am today. This announcement follows the conclusion of the RBI’s Monetary Policy Committee’s three-day meeting, which began on Tuesday and ends this morning.

Apart from announcing MPC’s decision on the repo rate and other policy interest rates, Das will also discuss the current domestic and global economic situation.

After the policy announcement, the RBI governor will also address a press conference which will be telecast at 12:00 pm on the RBI’s X handle

Analysts predict that the repo rate will remain unchanged at 6.5 percent for the seventh consecutive time. Besides the decision on the repo rate and other policy interest rates, Governor Das will address the current domestic and global economic situations. Analysts believe that due to persistent food inflation, the RBI MPC will prioritize inflation targeting, keeping the repo rate steady at 6.5 percent.

There might be a downward revision in the FY25 GDP growth forecast because of the high base effect of 8.2 percent growth in FY24. The inflation target is expected to stay the same. Following the policy announcement, Governor Das will hold a press conference at 12:00 pm, which will be broadcast on the RBI’s X handle and streamed on the RBI’s YouTube channel.

RBI Moves 100 Tonnes Of Gold From UK To India For The First Time Since 1991

May 31, 2024, 11:30 am

The Reserve Bank of India (RBI) has relocated over 100 tonnes of gold from the UK to its vaults in India. This marks the first significant addition of precious metal to the domestic stock since at least early 1991. According to official sources, a similar quantity of gold may be transferred to India in the coming months for logistical reasons and diversified storage.

At the end of March, the RBI held 822.1 tonnes of gold, with 413.8 tonnes stored overseas. The central bank has been among those purchasing gold in recent years, adding 27.5 tonnes during the last financial year. Traditionally, the Bank of England has been a primary storage facility for central banks, including India, with some gold stocks dating back to pre-independence days.

An official explained, “RBI started purchasing gold a few years ago and decided to undertake a review of where it wants to store it, something that is done from time to time. Since the stock was building up overseas, it was decided to get some of the gold to India.”

For many Indians, gold holds emotional significance, especially after the Chandra Shekhar government pledged the precious metal to address the balance of payments crisis in 1991. While the RBI purchased 200 tonnes of gold from the International Monetary Fund around 15 years ago, recent years have seen a steady increase in gold stocks through purchases by the Indian central bank. A source noted, “It shows the strength of the economy and the confidence, which is in sharp contrast to the situation in 1991.”

Transporting 100 tonnes of gold, which constitutes nearly a fourth of the domestic stock as of March, was a significant logistical challenge requiring months of planning and precise execution. This effort involved close coordination between the finance ministry, RBI, and various government departments, including local authorities.

Initially, the RBI obtained a customs duty exemption to import the metal into the country, with the Centre “foregoing revenue” on what is a sovereign asset. However, there was no exemption from integrated GST, which is shared with the states. The gold transfer required a special aircraft and detailed security arrangements. Additionally, this move will help the RBI save on some storage costs paid to the Bank of England, though the amount saved is not substantial.

Domestically, the gold is stored in vaults at the RBI’s old office building on Mumbai’s Mint Road as well as in Nagpur.

Six week Long National Election Leads To RBI Liquidity Dilemma

May 7, 2024, 12:44 pm

As India’s national elections unfold over an extended six-week period, the Reserve Bank of India (RBI) has taken proactive steps to ease liquidity strains within the banking system. The prolonged election season has led to a slowdown in government spending despite robust tax collections, prompting the RBI to inject liquidity through various measures.

Voting commenced on April 19 and is scheduled to conclude on June 1, with the counting of votes set for June 4. Historically, government expenditure tends to decelerate during election periods, typically picking up momentum once a new government is established and a budget is presented.

In a recent move aimed at bolstering liquidity, the government announced a surprise buyback of bonds worth Rs 40,000 crore ($4.8 billion). This buyback initiative is expected to infuse much-needed funds into the banking system, leading to a reduction in bond yields. Yields on bonds maturing in 2-5 years witnessed a decline of 3-5 basis points following the announcement, with longer-term yields also experiencing a cooling effect.

Experts view this bond buyback as a strategic liquidity-enhancing maneuver amidst the current economic scenario. Gaura Sen Gupta, an economist at IDFC FIRST Bank, highlighted that reduced government spending during election periods has necessitated such liquidity injections to maintain financial stability.

Anitha Rangan, an economist at Equirus Group, pointed out the significant drop in government spending during the April-June period, attributing it to the ongoing elections. This decrease in spending has underscored the importance of liquidity management measures by regulatory bodies like the RBI.

The RBI has been actively intervening to mitigate liquidity challenges, having infused Rs 1.7 lakh crore through variable rate repo auctions since mid-April, according to Citi economists. This proactive approach by the central bank is in anticipation of potential delays in government spending decisions due to election-related factors, which could further tighten liquidity conditions.

Furthermore, analysts at Citi noted that while the RBI’s dividend is expected to be transferred to the government in May, spending might experience delays owing to the ongoing elections. This scenario underscores the importance of continuous liquidity support measures to ensure economic stability during critical periods.

RBI: Need 8-10% Annual Growth for India’s Developmental Goals

April 24, 2024, 1:22 am

To fulfill its developmental objectives over the next thirty years, the Indian economy needs to maintain a growth rate of 8-10% per annum in the coming decade. This is crucial to capitalize on the demographic dividend, which began accruing in 2018 and is projected to continue until 2055, as per assessments, according to an article in the Reserve Bank of India’s (RBI) monthly bulletin, released on Tuesday.

In its article titled ‘State of the Economy,’ the RBI stated that conditions in India are indicating a continuation of the trend that raised the average real GDP growth above 8 per cent during 2021-24.

Thus far, the enhancement of capital is driving the acceleration of the country’s growth path, propelled by consistent public investment and reinforced by advancements in productivity.

“More recently, a resurgence of private investment has become visible, according to the Asian Development Bank (ADB), which is shifting its investment strategy to expand space for private capital,” read the article.

The creditworthiness of Indian corporates has improved due to deleveraged balance sheets, steady domestic demand, and increased public capital expenditure. Rating upgrades have consistently outnumbered downgrades. The article suggests that to leverage its favorable demographics and surpass the low-middle-income barrier, India’s developmental strategy in the coming decades should focus on maximizing the contribution of its youthful and expanding labor force to Gross Value Added growth.

It stressed the importance of enhancing the employability of the youth.

“Raising employability–the set of skills that makes a person more likely to gain employment in a chosen occupation to benefit the person, the workforce, the community and the economy–with a focus on the formalisation of employment opportunities for the youth and women should continue to be the hallmark of the strategy,” the article read.

India’s growth trajectory will significantly depend on the quality of its workforce, given that the working-age population is projected to increase by approximately 9.7 million per annum from 2021-31 and 4.2 million per annum from 2031-41.

Although labor quality has historically exhibited slow growth, at a rate of 0.7% per annum between 1980 and 2021, there is increasing evidence indicating an improvement in the growth rate of aggregate labor quality since 2017-18.

The improvement in aggregate labor quality is primarily driven by the services sector. Additionally, a significant development supporting India’s growth aspirations is the evolution of inflation dynamics in recent data. The article contends that since January of this year, the easing of headline inflation is bolstering growth prospects.

In India, the Consumer Price Index (CPI) inflation stood at 4.9% in March, down from an average of 5.1% in the preceding two months, following a recent peak of 5.7% in December 2023.

“With 4 per cent inflation finally being sighted, there is greater confidence now that the descent of inflation to the target is imminent,” it said.

Inflation remains the primary concern for members of the Monetary Policy Committee of RBI as they consider loosening their stance on key interest rates.

According to the minutes of the latest monetary policy meeting released last week, uncertainties surrounding inflation were frequently mentioned. Looking forward, uncertainties regarding food prices are expected to persist and impact the inflation outlook, as stated in the minutes.

Retail inflation in India falls within the RBI’s comfort level of two-six percent but remains above the ideal scenario of four per cent. While inflation has been a concern for many countries, including advanced economies, India has generally succeeded in managing its inflation trajectory effectively.

RBI directs all banks to provide all loan fees’ detail from Oct 1

April 16, 2024, 9:31 am

The Reserve Bank Of India has mandated that all banks and financial institutions furnish borrowers with a comprehensive key facts statement, starting from October 1, in an effort to increase lending practices’ transparency. Along with the standard loan data, this statement will provide information on all fees and the annual cost of credit. The statement must also include information regarding the policy regarding recovery agents, the contact details for grievance resolution, and the possibility of the loan being transferred to other organisations.

According to RBI circular, “Regulated entities shall establish the necessary systems and procedures to adhere to the aforementioned guidelines promptly. In any event, all new retail and MSME term loans sanctioned on or after Oct 1, 2024, including fresh loans to existing customers, must adhere to these guidelines fully and without exception.”

The RBI highlights that the goal of these changes is to give borrowers a clear knowledge of their loan terms so they may make wise financial decisions. No matter whether financial institution provides the loan, these rules will be universally applicable to all kinds of loans for individuals and small businesses.

The inclusion of the annual percentage rate (APR) for the first time is a noteworthy change to the data supplied. This includes the annual cost of credit that the borrower bears, which includes the interest rate and any other applicable fees. According to the RBI, “Charges recovered from borrowers by regulated entities on behalf of third-party service providers on an actual basis, such as insurance and legal charges, shall also be included in the APR and disclosed separately.”

APR will make it easier for aggregators and borrowers to compare the total costs of loans from different lenders.

The RBI has been gradually tightening loan disclosure rules since 2015. The same year, 2022, these rules were further improved for digital lenders as well as microfinance institutions. The RBI declared its intention to implement a requirement for a key facts statement as one of the developmental initiatives that were unveiled in February of this year along with the monetary policy.