Wait and watch remains the mantra for RBI

Against this background, on the domestic front, the latest data shows that growth appears to be broad-based across sectors, including the contact-intensive sectors. Continuous direct transfers under PM Kisan Yojana are supporting rural demand. The demand for work under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) declined in November from a year ago, indicating a pick-up in demand for agricultural workers. As far as inflation is concerned, RBI has projected CPI (Consumer Price Index) inflation for FY22 at 5.3% with risks balanced broadly.

serial calibration

Thus, valuations at this juncture support the status quo in interest rate, but gradual calibration of liquidity. The comments are suggesting that the central bank has already acted stealthily on rates and hence an increase in reverse repo will be a non-event in the latest Monetary Policy Committee (MPC) meeting (ideally the RBI Act does not allow this) ). Such an assumption is clearly misleading.

It may be noted that overnight rates still hover around the lower end of the corridor, with TRAPES (Tri-Party Repo Dealing System) averaging around 3.30%. When the total amount deposited in the overnight reverse repo falls below, overnight rates will start rising towards the upper end of the corridor 1 trillion, likely starting January. This corridor will complete the normalization process and a hike in the reverse repo rate beyond such time could be an ideal opportunity and a better time.

Meanwhile, the recent increase (of .) 3.3 trillion during the fortnight ending November 5) and a sharp decline in deposits in the subsequent fortnight 2.7 trillion) clearly indicates that liquidity management cannot be separated from the market microstructure.

pay attention to

The payment system has attracted the attention of RBI in every recent monetary policy. Continuing the momentum, RBI has again announced measures to facilitate the adoption of digital payment methods.

Paying user fees for digital payments has been a long-pending issue, with banks absorbing merchant discounts in many cases. RBI has initiated a discussion paper to take a comprehensive view on the issues covering all aspects related to charges involved in various channels of digital payments such as credit cards, debit cards, prepaid payment instruments (cards and wallets), UPI, etc. is of. A welcome step.

financial inclusion

The central bank’s proposal to deepen financial penetration by bringing 550 million feature-phone users to mainstream digital payments is a welcome move. Similarly, the UPI (Unified Payments Interface) app proposes to enable small value transactions through ‘on-device’ wallets, which will conserve system resources of banks without any change in the transaction experience for the user. . To encourage greater use of digital payments.

Further widening of the scope of UPI to reach investments in G-Sec (Government Securities) segment through the recent launch of Retail Direct Scheme and IPO will further increase retail participation in financial markets.

The decision to raise capital and repatriate without prior RBI approval will ensure a faster turnaround time for Indian banks to participate seamlessly in the host country’s financial ecosystem. Also, timely repatriation of surplus profits can enhance domestic operations in select cases.

Overall, the policy remains in wait-and-watch mode. Reliable COVID forecasting models now project a slight increase in infections in Q4. If this materialises, the policy adjustments by the RBI will probably continue in the February policy as well.

Soumya Kanti Ghosh is the Group Chief Economic Advisor of State Bank of India. The views expressed here are personal.