RBI Monetary Policy Highlights

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Key highlights of the policy-

• RBI has kept the repo rate and reverse repo rate unchanged at 4% and 3.35% respectively in its first monetary policy statement of FY 2023. 
• This is the 11th time in a row that the MPC headed by the RBI Governor has maintained the status quo (RBI had last revised its policy repo rate or the short-term lending rate on May 22, 2020).
• MPC revised FY23 GDP forecast to 7.2% from earlier guidance of 7.8%. 
• Inflation projections have also been raised to 5.7%, higher than previous expectation of 4.5%, primarily due to war induced factors.
• Marginal standing facility, i.e. MSF rate & bank rate remain unchanged at 4.25%. 
• Further, it has been decided by RBI to restore the width of liquidity adjustment facilities, i.e. LAF corridor to 50 basis points – the position that prevailed before the pandemic.
• As global crude oil prices remain volatile, RBI will maintain orderly financial condition in the market and will take steps to contain the impact of global spillovers.
• RBI has said that the Indian economy is comforted by large forex reserves.

New initiatives-

• The RBI’s  MPC  has proposed to make cardless cash withdrawal facility available at all ATMs, irrespective of banks, through the Unified Payment Interface (UPI).
  • With this ATMs soon will show an option to withdraw cash using UPI. 
  • Upon selecting that option, a user would have to add the amount they wish to withdraw following which a QR code would be generated on the ATM machine. 
  • The user would then have to scan that code on their UPI app and enter their pin following which the ATM will dispense cash.

• Currently, a few banks such as ICICI Bank, Kotak Mahindra Bank, HDFC Bank and SBI, allow their users to withdraw cash from their ATMs without a card, a feature introduced in the wake of the Covid-19 pandemic.
• RBI has also introduced the Standing Deposit Facility (SDF), an additional tool for absorbing liquidity, at an interest rate of 3.75 per cent.
• The main purpose of SDF is to reduce the excess liquidity of Rs 8.5 lakh crore in the system, and control inflation.
• In 2018, the amended Section 17 of the RBI Act empowered the Reserve Bank to introduce the SDF – an additional tool for absorbing liquidity without any collateral. 
• By removing the binding collateral constraint on the RBI, the SDF strengthens the operating framework of monetary policy.
• The SDF is also a financial stability tool in addition to its role in liquidity management.
• The SDF will replace the fixed rate reverse repo (FRRR) as the floor of the LAF corridor. 
• Both the standing facilities — the MSF (marginal standing facility) and the SDF will be available on all days of the week, throughout the year.
• The SDF rate will be 25 bps below the policy rate (Repo rate), and it will be applicable to overnight deposits at this stage. 
• The RBI’s plan is to restore the size of the liquidity surplus in the system to a level consistent with the prevailing stance of monetary policy.
• The fixed rate reverse repo (FRRR) rate which is retained at 3.35 per cent will remain part of the RBI’s toolkit, and its operation will be at the discretion of the RBI for purposes specified from time to time. 
• The FRRR along with the SDF will impart flexibility to the RBI’s liquidity management framework.

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