RBI Monetary Policy : August 2019 Key Highlights

The Monetary Policy Committee (MPC) met on 5th, 6th, and 7th August 2019 and deliberated over the evolving macroeconomic outlook, against the backdrop of recent developments and incoming data.

A series of the announcement was made after the 3rd bi-monthly policy review by the MPC, led by Reserve Bank of India (RBI) Governor Shaktikanta Das, for FY 2019-20.

Here is the list of key highlights of this meet.

Key Policy Highlights

1. RBI lowers repo rate by 35 basis points

For the 4th consecutive time, the RBI on 7th August 2019, cut its benchmark Repo rate this time by a more than expected margin of 35 basis points.

Now the current Repo rate is 5.40%. Repo rate is the rate at which the RBI lends to banks.

All 6 members of the MPC voted in favor of the rate cut. The MPC noted that inflation is currently projected to remain within the target.

Shaktikanta Das, termed the steeper cut as a balanced call given the domestic and global developments.

He explained that a 0.25% points reduction, as it has done thrice this year since February, would have been inadequate, while a 0.50% points cut would have been excessive. The reverse repo rate now stands revised to 5.15%

2. Repetitive Bill Payments to be covered under the Bharat Bill Payments System (BBPS)

The RBI has decided to cover all repetitive bill payments under the Bharat Bill Payment System (BBPS) and a detailed guideline in this regard will be issued by the end of September 2019.

As of now, repetitive bill payments cover five segments:

• direct-to-home,
• electricity,
• gas,
• telecom and
• water bills

In order to leverage the advantages of the BBPS and harness its full potential, it has been decided to permit all categories of billers (except prepaid recharges) who provide for recurring bill payments to participate in BBPS on a voluntary basis.

3.  Higher liquidity Assurance Given to NBFCs

Mr. Das said the Reserve Bank will not allow any large and systemically important entity from the troubled shadow banking space to collapse.

The comments come at a time when a large number of non-banking financiers and a few housing finance companies are facing severe liquidity issues which have been attributed to their mismanagement of the asset-liability mixes.

He also said that  RBI has identified around 50 large Non-Banking Finance Corporations (NBFCs), including some housing finance companies and they are being monitored now.

RBI has taken these measures to ensure there is no collapse of any large systematically important NBFCs.

4. NEFT transfer will be 24X7 from December

The RBI has decided to allow round-the-clock fund transfers through National Electronic Funds Transfer (NEFT) from December this year in order to promote digital transactions among a larger audience.

This decision is expected to revolutionize the retail payments system of the country, as per RBI.

Currently, the NEFT operated by the RBI as a retail payment system is available for customers from 8 am to 7 pm on all working days with the exception of 2nd and 4th Saturdays of a month.

The NEFT system is used for fund transfers up to Rs. 2 lakh.

5. Commentary On India’s Growth Slowdown

Mr. Das said the economy is in the midst of a cyclical slowdown and not a structural one. He expressed confidence that the government will come up with more measures to revive the sagging growth, which dipped to a five-year low of 5.8% for the March quarter and is expected to slip further in the June quarter.

RBI expects growth in India to revive in the second half of 2019.

6. Down GDP growth projection

RBI marginally lowered the GDP growth projection for FY 2019-20 to 6.9% from 7% forecast in the June policy, and underlined the need for addressing growth concerns by boosting aggregate demand.

Mr. Das said the central bank has lowered the GDP growth forecast owing to demand and investment slowdown, which is causing dampening effect on the growth.

7. Other important announcements

• One-year MCLR comes down to 8.25% per annum, from 8.40% annum
• RBI said the decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2 percent while supporting growth.
• On domestic developments, the MPC observed that the south-west monsoon is rapidly catching up, with the cumulative rainfall being 6 percent below the long-period average (LPA) and 25 of the 36 sub-divisions having received normal or excess rainfall as on August 6, 2019.
• Merchandise exports contracted in June 2019. Imports also contracted and as the fall in imports was larger than that of exports, the trade deficit declined modestly during May-June on a year on year basis.

Disclaimer: The views expressed in this post are that of the author and not those of Groww