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‘RBI may go for another repo rate hike’

The inflation which is ranging above the upper tolerance band of the Reserve Bank of India (RBI) for the eighth straight and therefore Morgan Stanley too expect inflation to remain sticky around 7.1-7.4 per cent …reports Asian Lite News

The Monetary Policy Committee in the September credit policy is likely to increase the repo rate by 50 basis points to 5.90 per cent and will keep stance unchanged, according to a report by Morgan Stanley.

“We were earlier expecting a 35bp increase,however, sticky inflation and continued hawkish stance of DM central banks, warrants continued front loading of rate hikes, in our view,” the report said.

The inflation which is ranging above the upper tolerance band of the Reserve Bank of India (RBI) for the eighth straight and therefore Morgan Stanley too expect inflation to remain sticky around 7.1-7.4 per cent in September as well, driven by increases in food prices as per high frequency food price trend.

Thereafter, we expect the trend to moderate but remain above 6 per cent until January/Februaru 2023. Risks to the inflation outlook are skewed to the upside due to uncertainty around food inflation trajectory (sowing for rice, pulses is lower YoY), changes in global commodity prices and possibility of imported inflation if exchange rate weakens amid dollar strength, the report added.

Going forward, the key to track in the policy will be: (a) changes to growth or inflation forecast. While incoming inflation data is along expected lines,growth for QE Jun was a tad below our expectations (even RBI’s projections), (b) comments around comfort on external balance sheet in the context of external risks and (c) overall tone of the policy statement and path on real rate normalization.

The RBI has lifted the repo rate by 140 basis points and surplus liquidity has fallen significantly (now $19.1 billion from $89 billion in January 2022), pushing the weighted average call rate to 5 per cent from 3.5 per cent in April.

However, the normalization in real rates has been less stark, with real policy rates at -1.6 per cent currently vs. -3.8 per cent in April. The external environment remains challenging, with generally higher commodity prices vs. pre-pandemic, stronger dollar and continued hawkish response from DM central banks. While domestic macro fundamentals are strong, risks from continued elevated commodity prices need to be tracked.

Against this backdrop, we expect monetary policy normalization to continue, pegging the terminal repo rate at 6.5 per cent by February 2023. Risks seem skewed to the upside for the terminal repo rate driven by external factors, which could potentially keep inflation higher for longer.

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G20: India, Indonesia expand ties on payment systems, combating terror financing

Reserve Bank of India and Bank Indonesia Agree to Expand Cooperation in Payment Systems, Digital Financial Innovation, and Anti Money Laundering and Combating the Financing of Terrorism (AML-CFT)

India and Indonesia on Saturday signed a Memorandum of Understanding (MoU) in Bali on the sidelines of the G20 meeting, to cooperate on a number of issues including payment systems and combating terror financing.

“Reserve Bank of India (RBI) and the Bank Indonesia (BI) signed a Memorandum of Understanding (MoU) on July 16, 2022 in Bali, Indonesia, on the sidelines of the G20 Finance Ministers and Central Bank Governors Meeting to improve mutual cooperation between the two central banks,” RBI said in a press statement.

The MoU was signed by RBI Deputy Governor Michael Debabrata Patra and BI Deputy Governor Dody Budi Waluyo in the presence of RBI Governor Shaktikanta Das and BI Governor Perry Warjiyo.

With this MoU, RBI and BI committed to deepen relations between both central banks and strengthen the exchange of information and cooperation in the area of central banking, including payment systems, digital innovation in payments services, and regulatory and supervisory framework for Anti Money Laundering and Combating the Financing of Terrorism (AML-CFT).

According to the statement, the MoU will be implemented through policy dialogue, technical cooperation, exchange of information and joint work.

Reserve Bank of India and Bank Indonesia agree to expand cooperation in payment systems, digital financial innovation, and anti money laundering and combating the financing of terrorism (AML-CFT)

The MoU will also provide a good basis for promoting mutual understanding, developing efficient payment systems and achieving cross-border payment connectivity. Such initiatives will be executed through (i) regular interaction on recent economic and financial developments and issues; (ii) technical cooperation through training and joint seminars; and (iii) joint work to explore the establishment of cross-border retail payment linkages.

Governor Perry Warjiyo emphasised, “This MoU serves as a significant milestone in the relation between Bank Indonesia and Reserve Bank of India. It has been a long period of time since we began cooperating productively, and this MoU will only ensure a more solid collaboration in the future. Going forward, I am convinced that such excellent partnership will result in fruitful outcomes that benefit both central banks and the people of both nations.”

Nirmala Sitharaman speaks during the High-Level Seminar On Strengthening Global Collaboration for Tackling Food Insecurity, on sidelines of G20FMCBG.

Governor Shaktikanta Das appreciated the gracious Indonesian hospitality and commended the excellent logistical and organizational arrangements for the G20 FMCBG meeting. He noted that “given our shared goals and challenges, it is only natural that we work together in many areas. This MoU is a step forward in putting our joint efforts within a formal mechanism.”

He also expressed the hope that “going ahead, the MoU will enable us to further deepen our relations and facilitate our endeavour to make our financial systems accessible, inclusive and secure.” (ANI)

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RBI sets up rupee settlement system for int’l trade

The central bank said the measure is taken to promote growth of global trade with emphasis on exports from India…reports Asian Lite News

The Reserve Bank of India (RBI) on Monday announced an additional framework for invoicing, payment, and settlement of exports/imports in Indian rupees.

According to the RBI, the authorised dealer banks should get the prior approval from its Foreign Exchange Department.

The central bank said the measure is taken to promote growth of global trade with emphasis on exports from India and to support the increasing interest of the global trading community in the Indian rupee.

The RBI said the broad framework for cross border trade transactions in Indian rupee under Foreign Exchange Management Act, 1999 (FEMA) include that all exports and imports under this arrangement may be denominated and invoiced in Indian rupee, the exchange rate between the currencies of the two trading partner countries may be market determined, and the settlement of trade transactions under this arrangement shall take place in Indian rupee.

The RBI said in terms of Regulation 7(1) of Foreign Exchange Management (Deposit) Regulations, 2016, authorised dealer banks in India have been permitted to open Rupee Vostro accounts.

Accordingly, for settlement of trade transactions with any country, the authorised dealer banks in India may open Special Rupee Vostro Accounts of correspondent bank/s of the partner trading country.

In order to allow settlement of international trade transactions through this arrangement, the RBI said that Indian importers undertaking imports through this mechanism shall make payment in rupee which shall be credited into the Special Vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller /supplier.

Indian exporters, undertaking exports of goods and services through this mechanism, shall be paid the export proceeds in rupee from the balances in the designated Special Vostro account of the correspondent bank of the partner country.

The RBI has also listed out the framework in case of advance against exports, setting of export receivables against import payables, bank guarantee, use of surplus balance in the Special Vostro Accounts and others.

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‘Inflation may ease in 2nd half of FY23’

Tracing the history of inflation in India, Das said in early 2022 inflation was expected to moderate significantly to the target rate of four per cent by third quarter of FY23…reports Asian Lite News

The inflation in India is expected to ease in a gradual manner in the second half of FY23, said Shaktikanta Das, Governor, Reserve Bank of India (RBI) on Saturday.

Speaking at the Kautilya Economic Conclave, organised by Institute of Economic Growth, New Delhi, Das said, with the supply outlook appearing favourable and several high frequency indicators pointing to resilience of the recovery in the first quarter (April-June) of 2022-23, the inflation may ease gradually in the second half of 2022-23, precluding the chances of a hard landing in India.

Tracing the history of inflation in India, Das said in early 2022 inflation was expected to moderate significantly to the target rate of four per cent by third quarter of FY23, with a projected average inflation rate of 4.5 per cent for 2022-23.

“This assessment was based on an anticipated normalisation of supply chains, the gradual ebbing of Covid-19 infections and a normal monsoon. The median inflation projection from the Survey of Professional Forecasters at five per cent for 2022-23 was also quite benign,” he said.

However, this was overtaken by the Russia-Ukraine war since February 2022, leading to a sharp spike in global crude oil and other commodity prices.

“Global food prices reached a historical high in March and their effects were felt in edible oil, feed cost and domestic wheat prices. The loss of Rabi wheat production due to an unprecedented heat wave put further pressures on wheat prices. Cost-push pressures were also aggravated by supply chain and logistics bottlenecks due to the war and sanctions,” Das said.

According to him, RBI’s objective was to safeguard the economy and preserve financial stability.

“Our endeavour has been to ensure a soft landing. These objectives continue to guide our actions even today and it will continue to be so in future,” he added.

Das said the benefits of globalisation come with certain risks and challenges. Shocks to prices of food, energy, commodities and critical inputs are transmitted across the world through complex supply chains.

“In fact, recent developments call for greater recognition of global factors in domestic inflation dynamics and macroeconomic developments which underscore the need for enhanced policy coordination and dialogue among countries to achieve better outcomes,” he said.

According to him, the insurance against such inevitable global shocks ultimately is built on sound economic fundamentals, strong institutions and smart policies. Price stability is key to maintaining macroeconomic and financial stability.

“We will continue to calibrate our policies with the overarching goal of preserving and fostering macroeconomic stability. In this endeavour, we will remain flexible in our approach while being cogent and transparent in our communication,” Das said.

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As inflation spikes, RBI raises repo rate

The RBI raised its key interest rate by 50 basis points on Wednesday, and raised its inflation projection to above target for this year…reports Asian Lite News

The Reserve Bank of India has raised the repo rate by 50 basis points to 4.9 per cent, Governor Shaktikanta Das said on Wednesday, adding that inflation was likely to remain above the upper tolerance level for three quarters of this financial year.

He was speaking at a press conference after the end of the three-day monetary policy review meeting that started on Monday.

Though the RBI raising policy rates in the ongoing monetary policy committee meeting was a “no brainer”, as said by its Governor Shaktikanta Das in a recent interview, investors, however, awaited the actual degree of percentage hike before taking fresh positions and future course of action in the financial markets.

In early May, the RBI, in a surprise off-cycle meeting, hiked the repo rate by 40 basis points (bps) to 4.40 per cent, amidst rising inflation concerns in the economy. Repo rate is the rate at which the central bank lends short-term funds to banks.

In the same off-cycle meeting, case reserve ratio was hiked by 50 basis points to 4.5 per cent essentially to squeeze out some liquidity from the system.

India’s retail inflation accelerated to 7.79 per cent in April, remaining above the tolerance limit of the central bank RBI for a fourth month in a row. It is highly likely that the retail inflation will remain above 6 per cent for another few months.

Das on Wednesday categorically said India’s retail inflation is likely to stay above the tolerance level till third quarter of FY23 before moderating below 6 per cent.

For FY23, RBI sees overall inflation at 6.7 per cent, with 7.5 per cent in Q1, 7.4 per cent in Q2, 6.2 per cent in Q3, and 5.8 per cent in Q4, taking into consideration the normal monsoon and average crude oil basket price of $105 per barrel.

Notably, wholesale inflation in the country has been in double digit for over a year now.

Coming to growth, India’s real GDP growth in FY23 is seen at 7.2 per cent, will be 16.2 per cent in Q1, 6.2 per cent in Q2, 4.1 in Q3, and 4.0 in Q4, with risks broadly balanced, Das said.

What does it mean?

The immediate impact of a repo rate hike is on retail loans such as home loans.

“Home loan interest rates which had bottomed out around 6.50 per cent in April will now be inching towards 7.60 per cent in June. The back-to-back repo rate hikes will make floating-rate loans longer. For example, if a person had borrowed at 7 per cent for 20 years and if their rate increased to 7.50 per cent, they would need to pay 24 more EMIs,” said Adhil Shetty, CEO, BankBazaar.com.

“If they had opted for an EMI adjustment, their per lakh EMI would increase by Rs 30 in the above example. In essence, their monthly outgo would increase by about 4 per cent. The math is different for each borrower. The key is to pay off the loan in the intended timeframe. Borrowers may use pre-payment methods such as EMI step-ups or lump-sum payments to control their interest burden,” he added.

Last month, the Reserve Bank had raised the repo rate by 40 bps in an off-cycle meeting, making it the first rate hike since August 2018.

“With the repo hike, interest rates on home loans will rise. A total hike of 90 bps within 36 days means all home loans on floating rates will be more expensive. Existing and new borrowers will have to dole out higher EMIs as banks and housing finance companies will pass on the rate hike to them. It may not be the last hike as the RBI is expected to increase the rates through 2022 or till inflation is brought to tolerable levels. Borrowers may either extend their home loan tenures to keep their EMIs unchanged or partially prepay some amount to minimise the burden of added interest. Your credit score will play a key role in helping you access lower interest rates, especially if you refinance your loan,” Mr Shetty further said.

Also, RBI has raised its inflation forecast for the current fiscal to 6.7 per cent due to prevailing geo-political tensions – Russia-Ukraine war.

“The 50 bps repo rate hike comes on the back of persistence of elevated inflation and the continued upside risks. Given that inflation is expected to remain above 6 per cent through 3Q FY23, RBI has to frontload actions. We continue to see another 60-85 bps hike in the rest of FY23 to manage inflationary expectations,” said Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank.

ALSO READ-RBI hikes repo rate 40 bps to 4.40%

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RBI to pay Rs 30,307 crore dividend to govt for FY22

As per a framework, the RBI has to maintain a contingency risk buffer of 5.5-6.5 per cent of its balance sheet…reports Asian Lite News

The Reserve Bank of India said its Board approved the transfer of Rs 30,307 crore surplus as dividend to the Centre for the accounting year FY22.

It decided to maintain the contingency risk buffer at 5.50 per cent.

As per a framework, the RBI has to maintain a contingency risk buffer of 5.5-6.5 per cent of its balance sheet.

The 596th meeting of the Central Board of Directors of Reserve Bank of India was held on Friday at Mumbai under the Chairmanship of Governor Shaktikanta Das, and reviewed the current economic situation, global and domestic challenges and the impact of recent geopolitical developments.

It also discussed the working of the central bank during the year April 2021-March 2022 and approved the Annual Report and accounts of the Reserve Bank for the accounting year 2021-22.

ALSO READ-RBI hikes repo rate 40 bps to 4.40%

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RBI hikes repo rate 40 bps to 4.40%

Most importantly, the unscheduled announcement by the central bank surprised the equity markets as it nose-dived right after…reports Asian Lite News

Reserve Bank of India Governor Shaktikanta Das on Wednesday said that the Monetary Policy Committee (MPC) of the central bank, in an off-cycle meeting, hiked the repo rate by 40 basis points (bps) to 4.40 per cent with immediate effect.

Repo rate is the rate at which the central bank lends short-term funds to banks. The RBI has cut the repo rate by 250 basis points since February 2019 to help revive the growth momentum. The Monetary Policy Committee has been on a prolonged accommodative stance to support the growth.

Also, the case reserve ratio has been hiked by 50 basis points to 4.5 per cent.

The move was taken in order to contain inflation.

The ongoing geopolitical tensions are pushing inflation higher in major economies besides the crude oil price also being volatile and above $100 per barrel.

Edible oil shortage is due to the conflict and ban by exporters, said Das.

“The decision today to raise the repo rate may be seen as a reversal of rate action of May 2020. Last month, we had set out a stance of withdrawal of accommodation. Today’s action needs to be seen in line with that action,” Das said.

“I would like to emphasise that the monetary policy action is aimed at containing inflation spike and re-anchoring inflation expectation,” Das said. “High inflation is known as detrimental to growth.”

Das, however, added that monetary stance remains accommodative and actions will remain calibrated.

Most importantly, the unscheduled announcement by the central bank surprised the equity markets as it nose-dived right after.

Sensex tanked nearly 1,100 points, whereas Nifty over 300 points.

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RBI to prioritise growth over inflationary fears


On the contrary, fuel and power inflation came in at a 10-month low of 8.7 per cent YoY in February 2022…reports Asian Lite News

The Reserve Bank of India (RBI) is expected to prioritise growth over inflationary fears in its April, 2022 policy meet.

Notably, the consumer price index (CPI) inflation print has remained at elevated level due to higher-than-expected vegetable prices in February.

Moreover, inflation is expected to remain at elevated levels due to higher crude oil price in subsequent months owing to the Russia-Ukraine crisis.

“Nevertheless, we still expect the RBI to prioritise growth in its April 2022 monetary policy meet as we believe growth is still a bigger concern currently rather than inflation,” said Motilal Oswal Financial Services.

“We expect inflation in the range of 5.2-5.4 per cent YoY in FY22.”

Earlier this month, CPI inflation came in at an eight-month high of 6.1 per cent YoY in February 2022.

Besides, food inflation came in at a 15-month high of 5.8 per cent YoY in February 2022 versus 5.4 per cent YoY a month ago.

“Within food, vegetables primarily caused the spike in inflation as excluding vegetables, CPI came in at 6.1 per cent YoY similar to the level seen in January 2022.”

“Other items such as cereals and products, meat and fish, spices, and sugar and confectionary that constitute 17 per cent weight in CPI index also contributed to higher inflation.”

On the contrary, fuel and power inflation came in at a 10-month low of 8.7 per cent YoY in February 2022.

Furthermore, core inflation stood at 6.2 per cent YoY for the fifth consecutive month in February 2022.

“All three components of core inflation remained broadly flat with no major movement.”

“Slightly higher inflation in housing, and clothing and footwear was offset by marginally low inflation in miscellaneous items.”

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RBI’s restrictions on ‘HDFC Digital 2.0’ removed

According to the bank, it is fully committed to ensuring continued adherence to the highest standards of compliance with RBI recommendations…reports Asian Lite News

The Reserve Bank of India has lifted the restrictions on the business generating activities planned under HDFC Bank’s ‘Digital 2.0’ programme.

“We wish to inform you that the RBI vide its letter dated March 11, 2022 has lifted the restrictions on the business generating activities planned under the Bank’s Digital 2.0 programme,” the bank said in a regulatory filing on Saturday.

“The members of the Board of Directors have taken note of the said RBI letter.”

According to the bank, it is fully committed to ensuring continued adherence to the highest standards of compliance with RBI recommendations.

“We have utilised this time to draw up short, medium, and long-term plans to meet the evolving digital requirements of our customers and we will roll out these initiatives in the days to come.”

In August last year, RBI had relaxed the restrictions on the bank and allowed the lender to issue new credit cards.

However, the restrictions on all new launches of the digital business generating activities planned under ‘Digital 2.0’ were to be reviewed by the RBI.

In December 2020, the RBI directed HDFC Bank to temporarily stop all launches of the ‘Digital Business’ generating activities and sourcing of new credit card customers on certain incidents of outages in the Internet banking, mobile banking and payment utilities of the bank over the past two years.

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RBI, govt discuss crypto investments

Shaktikanta Das had cushioned crypto investors just few days back saying “it is my duty to tell the investors who invest in cryptocurrencies to keep in mind that they are investing at their own risk…reports Asian Lite News

Crypto is back on the discussion table as Finance Minister Nirmala Sitharaman and Reserve Bank of India (RBI) Governor Shaktikanta Das deliberated over the issue. The Finance Minister had announced in her Budget speech that the RBI will launch a block chain based digital currency next year. The government also proposed to tax digital assets.

“With RBI & Ministry, not just on crypto but on every other thing as well, I think there’s complete harmony with which we’re working, respecting each other’s domain and also knowing what we’ve to do with each other’s priorities & in the interest of the nation. There’s no turfing here,” said Sitharaman after the meeting.

“Like several other issues, this particular issue is internally under discussion b/w RBI & the Govt. Whatever points we have, we discussed with the Govt. Beyond that I think I will not like to further elaborate,” said Das.

RBI Governor Shaktikanta Das had cushioned crypto investors just few days back saying “it is my duty to tell the investors who invest in cryptocurrencies to keep in mind that they are investing at their own risk and also need to keep in mind that the cryptocurrency has no underlying value, not even a tulip”.

“Yes, the issue that was discussed between the Finance Minister and the RBI governor along with other issues and there’s no difference of views on any of these, informed a Finance Ministry official requesting anonymity.

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