Inflation in consumer prices eased to a nearly five-year low of 3.54% in July, with food price rise moderating to 5.4% from a six-month high of 9.4% in June, thanks to base effects from last July when retail inflation stood at 7.4% and the food index was up 11.5%. File
| Photo Credit: Sushil Kumar Verma

Inflation in India’s consumer prices eased to a nearly five-year low of 3.54% in July, with food price rise moderating to 5.4% from a six-month high of 9.4% in June, thanks to base effects from last July when retail inflation stood at 7.4% and the food index was up 11.5%.

Inflation faced by urban consumers dropped to just under 3% in July, from 4.4% in June, while rural consumers experienced a relatively higher price rise of 4.1%, down from 5.7% in June.

Food price rise was also higher in rural India at 5.9% compared with 4.6% in urban parts of the country. In June, rural food inflation was lower at 9.15% while urban food prices were up 9.6%.

“During the month of July 2024 there is a decline in inflation for all the groups. Significant decline is in the vegetables, fruits and spices subgroups,” the Ministry of Statistics and Programme Implementation said.

July’s inflation rate marks a sharp dip from the four-month high of 5.1% recorded in June, and is the slowest uptick in prices recorded since September 2019.. This also means that this is the first time since then that the inflation rate has gone under the 4% median target pursued by the Reserve Bank of India (RBI) in its monetary policy.

This is the first time in nine months that food inflation has dropped below 8%

At its latest monetary policy review last week, the RBI had retained the average inflation projection for this year at 4.5%, but had raised the estimate for the July to September quarter to 4.4% from 3.8% projected earlier. This suggests that price rise will regain momentum over this month and next, with an average inflation of over 4.8%.

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| Photo Credit: PTI

Equity benchmark indices Sensex and Nifty continued to trade lower on Thursday (August 8) after the Reserve Bank of India decided to keep the policy rate unchanged for the ninth time in a row, saying food inflation remains stubborn.

Continuous foreign fund outflows and weak trends in the U.S. markets also drove domestic equities lower.

Extending its early trade decline, the 30-share BSE Sensex tumbled 570.09 points to 78,897.92. The NSE Nifty tanked 178.2 points to 24,119.30.

The rate increase cycle was paused in April last year after six consecutive rate hikes, aggregating to 250 basis points since May 2022.

Announcing the third bi-monthly monetary policy for the current financial year, RBI Governor Shaktikanta Das said the Monetary Policy Committee (MPC) has decided to keep the repo rate unchanged at 6.5%.

He said MPC will remain watchful of elevated food inflation.

“RBI MPC is in wait and watch mode and has kept the interest rates unchanged, waiting for clues from the largest Central Bank of the world, the US Federal Reserve, before acting. Stock markets will continue to consolidate in the meanwhile,” said Umeshkumar Mehta, CIO, SAMCO Mutual Fund.

Among the 30 Sensex firms, Power Grid, Infosys, Larsen & Toubro, JSW Steel, UltraTech Cement and Asian Paints were the biggest laggards.

Tata Motors, HDFC Bank, Tech Mahindra and ITC were among the gainers during the initial trade.

In Asian markets, Shanghai and Hong Kong traded higher while Seoul and Tokyo quoted lower.

The U.S. markets ended lower on Wednesday.

Foreign Institutional Investors (FIIs) offloaded equities worth ₹3,314.76 crore on Wednesday, according to exchange data.

“During the last four days, FIIs have sold ₹20,228 crore in the cash market. This is a rational thing to do given India’s elevated valuations and the concerns surrounding recession fears in the US and further issues relating to the unwinding of the yen carry trade,” said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

Global oil benchmark Brent crude climbed 0.17% to USD 78.46 a barrel.

On Wednesday, the BSE benchmark Sensex rallied 874.94 points or 1.11% to settle at 79,468.01. During the day, it jumped 1,046.13 points or 1.33 per cent to 79,639.20.

The NSE Nifty jumped 304.95 points or 1.27% to 24,297.50. Intraday, it surged 345.15 points or 1.43% to 24,337.70.

Mumbai, Apr 05 (ANI): RBI Governor Shaktikanta Das addresses during a press conference regarding the monetary policy decisions, in Mumbai on Friday. (ANI Photo)
| Photo Credit: ANI

Considering the popularity and convenience of UPI, the Reserve Bank of India (RBI) has proposed to enable UPI for cash deposit facility. RBI Governor Shaktikanta Das, while making a statement on developmental and regulatory policies, said, “Given the popularity and acceptance of UPI, as also the benefits seen from the availability of UPI for card-less cash withdrawal at ATMs, it is now proposed to facilitate cash deposit facility through use of UPI.”

Cash Deposit Machines (CDMs) deployed by banks enhance customer convenience while reducing cash-handling load on bank branches. The facility of cash deposit is presently available only through the use of debit cards.

The Governor said operational instructions on enabling UPI for cash deposit facility will be issued shortly.

In another announcement to provide more flexibility to Prepaid Payment Instruments (PPIs) holders, the RBI has proposed to permit linking of PPIs through third-party UPI applications. “This will enable the PPI holders to make UPI payments like bank account holders. Instructions in this regard will be issued shortly,” Mr. Das said.

At present, UPI payments from bank accounts can be made by linking a bank account through the UPI App of the bank or using any third-party UPI application. However, the same facility is not available for PPIs. PPIs can currently be used to make UPI transactions only by using the application provided by the PPI issuer.

Meanwhile in another measure, the RBI to facilitating wider non-resident participation in Sovereign Green Bonds (SGrBs), decided to permit eligible foreign investors in the International Financial Services Centre (IFSC) to also invest in such bonds.

A scheme for investment and trading in SGrBs by eligible foreign investors in IFSC is being notified separately in consultation with the Government and the IFSC Authority.

Based on an announcement in the Union Budget for FY 2022-23, the Government of India had issued SGrBs in January 2023. The SGrBs were also issued as part of the Government borrowing calendar in FY 2023-24.

At present, foreign portfolio investors (FPIs) registered with SEBI are permitted to invest in SGrBs under the different routes available for investment by FPIs in government securities.

The RBI has also decided to introduce a Mobile App of its RBI Retail Direct scheme which was rolled out in November 2021, giving access to individual investors to maintain gilt accounts with RBI and invest in government securities. The Scheme enables investors to buy securities in primary auctions as well as buy/sell securities through the NDS-OM platform.

“To further improve ease of access, a mobile application of the Retail Direct portal is being developed. The app will enable investors to buy and sell instruments on the go, at their convenience. The app will be available for use shortly,” Mr. Das said.

The central bank on Friday also decided for the distribution of Central Bank Digital Currencies (CBDCs) through Non-bank Payment System Operators.

Currently CBDC pilots in the Retail and Wholesale segments are underway with more use-cases and more participating banks. Continuing with this approach, the RBI has proposed to make CBDC-Retail accessible to a broader segment of users in a sustained manner, by enabling non-bank payment system operators to offer CBDC wallets.

“This is expected to enhance access and expand choices available to users apart from testing the resiliency of the CBDC platform to handle multi-channel transactions. Necessary changes will be made to the system to facilitate this,” Mr Das said.

To expand the avenues available to the Small Finance Banks for hedging interest rate risk in their balance sheet and commercial operations more effectively as well as to provide them with greater flexibility, the RBI has decided to allow them to deal in permissible rupee interest derivative products in terms of Rupee Interest Rate Derivatives (Reserve Bank) Directions, 2019. A circular in this regard will be issued shortly. 

The current guidelines permit Small Finance Banks to use only Interest Rate Futures (IRFs) for the purpose of proprietary hedging.

The RBI also decided to review the Liquidity Coverage Ratio (LCR) framework.

“Banks covered under LCR framework are required to maintain a stock of high quality liquid assets (HQLA) to cover the expected net cash outflows in the next 30 calendar days. However, the recent episodes in some jurisdictions have demonstrated the increased ability of the depositors to quickly withdraw or transfer deposits during times of stress, using digital banking channels,” Mr. Das said.

“Such emerging risks may require a revisit of certain assumptions under LCR framework. Therefore, certain modifications to the LCR framework are being proposed towards facilitating better management of liquidity risk by the banks. A draft circular in this regard will be issued shortly for comments of all stakeholders,” he said.

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| Photo Credit: C. Venkatachalapathy

The Reserve Bank of India has proposed to facilitate cash deposit facility in banks through the use of UPI, an instant real-time payment system for inter-bank transactions through mobile phones.

ALSO READ | RBI Monetary Policy LIVE updates 

“Given the popularity and acceptance of UPI, as also the benefits seen from the availability of UPI for cardless cash withdrawal at ATMs, it is now proposed to facilitate cash deposit facility through use of UPI,” RBI Governor Shaktikanta Das said in the Monetary Policy Statement, released on April 5, 2024.

The Cash Deposit Machines (CDMs) deployed by banks enhance customer convenience while reducing cash-handling load on bank branches. The facility of cash deposit is presently available only through use of debit cards.

Operational instructions regarding cash deposits using UPI will be issued shortly, according to the central bank.

RBI to permit linking PPIs with UPI apps

The RBI has also proposed to permit linking of Prepaid Payment Instruments (PPIs) through third-party UPI applications to provide more flexibility to users.

At present, UPI payments from bank accounts can be made by linking a bank account through the UPI app of the bank or using any third-party UPI application. However, the same facility is not available for PPIs.

PPIs can currently be used to make UPI transactions only by using the application provided by the PPI issuer.

“To provide more flexibility to PPI holders, it is now proposed to permit linking of PPIs through third-party UPI applications. This will enable the PPI holders to make UPI payments like bank account holders,” the RBI said.

Instructions in this regard too will be issued shortly.

 The 30-share BSE Sensex fell 235.99 points to 65,759.82. The NSE Nifty declined 64.2 points to 19,568.35.
| Photo Credit: AP

Benchmark equity indices declined in early trade on Thursday ahead of RBI’s monetary policy decision amid a weak trend in global markets.

Investors also remained on the sidelines ahead of the U.S. inflation data announcement.

The 30-share BSE Sensex fell 235.99 points to 65,759.82. The NSE Nifty declined 64.2 points to 19,568.35.

From the Sensex pack, Asian Paints, HCL Technologies, ITC, Tata Consultancy Services, Tata Motors, Tata Steel, ICICI Bank, Tech Mahindra, Nestle and Bharti Airtel were the major laggards.

NTPC, UltraTech Cement, Power Grid, Maruti and Mahindra & Mahindra were among the gainers.

In Asian markets, Tokyo traded in the green, while Seoul, Shanghai and Hong Kong quoted lower.

The U.S. markets ended in the negative territory on Wednesday.

“The market today will be focussed on the MPC’s decision on rates, stance and communication on tone. The near market consensus is that the rates and stance will remain unchanged and the tone will be hawkish in view of the high inflation.

“Any deviation from these expectations can move the markets,” said V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Globally markets would be focused on the US CPI numbers to be released today, Vijayakumar said, adding that the Fed’s rate action will be based on that.

Foreign Institutional Investors (FIIs) turned buyers on Wednesday after continuous offloading of equities for the past several days. They bought equities worth Rs 644.11 crore on Wednesday, according to exchange data.

Global oil benchmark Brent crude declined 0.16 per cent to $87.41 a barrel.

The BSE benchmark had climbed 149.31 points or 0.23 per cent to settle at 65,995.81 on Wednesday. The Nifty gained 61.70 points or 0.32 per cent to end at 19,632.55.

The Monetary Policy Committee has unanimously decided to keep the policy repo rate unchanged, RBI Governor Shaktikanta Das said in Mumbai on August 10, 2023.
| Photo Credit: Emmanual Yogini

The Monetary Policy Committee (MPC) of the Reserve Bank of India on August 10 decided unanimously to keep the policy repo rate unchanged at 6.50%. 

Consequently, the standing deposit facility (SDF) rate remains at 6.25% and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%. 

The MPC also decided by a majority of 5 out of 6 members to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth.

Explaining the MPC’s rationale for these decisions on the policy rate and the stance, RBI governor Shaktikanta Das in his statement said, “Headline inflation, after reaching a low of 4.3% in May 2023, rose in June and is expected to surge during July-August led by vegetable prices.”

“While the vegetable price shock may reverse quickly, possible El Niño weather conditions along with global food prices need to be watched closely against the backdrop of a skewed south-west monsoon so far. These developments warrant a heightened vigil on the evolving inflation trajectory,” he said. 

“The cumulative rate hike of 250 basis points undertaken by the MPC is working its way into the economy. Nonetheless, domestic economic activity is holding up well and is likely to retain its momentum, despite weak external demand. Considering this confluence of factors, the MPC decided to remain watchful and evaluate the emerging situation,” he added. 

Consequently, the MPC decided to keep the policy repo rate unchanged at 6.50% with preparedness to act, should the situation so warrant, Mr. Das said. 

He said the MPC remained resolute in its commitment to aligning inflation to the 4 per cent target and anchoring inflation expectations.

Taking all various factors into consideration, the Governor said the real GDP growth for 2023-24 is projected at 6.5% with Q1 at 8.0%; Q2 at 6.5%; Q3 at 6.0%; and Q4 at 5.7%. Real GDP growth for Q1:2024-25 is projected at 6.6%. The risks are evenly balanced.

Given the continuing external uncertainties, the latest CPI inflation projection for 2023-24, assuming a normal monsoon, has been revised to 5.4%, with Q2 at 6.2%, Q3 at 5.7% and Q4 at 5.2%. CPI inflation for Q1:2024-25 is projected at 5.2%. The risks are evenly balanced.

The Governor said considering the difficulties in major economies, the Indian economy is better placed. “India can become the new growth engine of the world,” he said.