RBI hikes Repo Rate by another 50 basis points

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Key updates-

• The repo rate, the rate at which RBI lends money to commercial banks, has been hiked by one half of a percent. 
• Considering the prevailing adverse global environment, resilience in domestic economic activity, uncomfortably high inflation level, the RBI has hiked the policy repo rate by 50 basis points, to 5.40%.
• The Monetary Policy Committee of the RBI came to this judgement since it felt the need to keep inflation and inflationary expectations under check.  
• The central bank’s growth projection for the Indian economy remains unchanged, at 7.2% for the current financial year, with Q1 at 16.2 per cent; Q2 at 6.2 per cent; Q3 at 4.1 percent; and Q4 at 4.0 percent. 
• Real GDP growth for Q1:2023-24 is projected at 6.7 per cent.

Five additional Measures announced-

The Governor announced a series of five additional measures, as given below:

Encouraging Standalone Primary Dealers to further Develop Financial Markets-

• Standalone Primary Dealers (SPDs) will now be able to offer all foreign exchange market-making facilities as currently permitted to Category-I Authorized Dealers, subject to prudential guidelines. 
• This will provide customers with a wider set of market makers to manage their foreign currency risk. This will also increase the breadth of the forex market in India.
• SPDs will also be permitted to undertake transactions in the offshore Rupee Overnight Indexed Swap market with non-residents and other market makers. 
• This measure will supplement a similar measure announced in February 2022 for the banks. 
• These measures are expected to remove the segmentation between onshore and offshore OIS markets and improve price discovery.
• The measures are being taken, considering the role of SPDs in developing financial markets.

Managing Risks and Code of Conduct in Outsourcing of Financial Services-

• There has been an increasing trend of outsourcing of financial services by regulated entities. Considering this, the RBI is going to issue a draft Master Direction on Managing Risks and Code of Conduct in Outsourcing of Financial Services for public comments. 
• This is being done to strengthen the risk management framework and harmonize and consolidate the existing guidelines.

Bharat Bill Payment System to be open to NRIs as well-

• The Bharat Bill Payment System (BBPS), an interoperable platform for standardized bill payments, will now be able to accept cross-border inward bill payments. 
• This will thereby enable NRIs as well to use the system to pay their bills for utility, education and other such services, on behalf of their families in India. This will thus greatly benefit senior citizens.

Credit Information Companies to be brought under Reserve Bank Integrated Ombudsman Scheme (RB-IOS) 2021-

• To make the RB-IOS more broad-based, Credit Information Companies (CICs) are being brought under the RB-IOS framework. 
• With this, RBI gets a cost-free alternative mechanism for redressal of grievances against Credit Information Companies.
• Further, these companies will now need to have their own internal Ombudsman (IO) framework. 

MIBOR Benchmark Committee to be set up-

• The RBI has decided to set up a committee to undertake an in-depth examination of the issues relating to development and use of interest rate derivatives, including the need for transitioning to an alternative benchmark for Mumbai Interbank Outright Rate, and suggest the way forward. 

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