The six-member Monetary Policy Committee (MPC) of the Reserve Bank of India has not reduced the repo rate from the current level of 4 per cent. The repo rate has already been reduced by 250 basis points since February last year.
After taking part in the Monetary Policy Committee that met on August 4- 6, RBI Governor Shaktikanta Das said that the MPC voted unanimously to leave the policy repo rate unchanged at 4 per cent. The Marginal Standing Facility (MSF) rate remained unchanged at 4.25 per cent. The reverse repo rate stands unchanged at 3.35 per cent.
In the MPC’s assessment, global economic activity has remained fragile and in retrenchment in the first half of 2020. Global financial markets, however, have been buoyant, with the return of risk-off sentiment inserting a disconnect from the underlying state of the real economy.
The global manufacturing purchasing managers’ index (PMI) and the global services PMI rose to 50.3 and 50.5, respectively in July. The WTO has estimated that the volume of merchandise trade shrank by 3.0 per cent year-on-year in the first quarter and early estimates suggest a fall of 18.5 per cent in the second quarter.
Despite the growth, the surge in fresh infections has forced re-clamping of lockdowns in several cities and states. Consequently, several high-frequency indicators have levelled off. The agriculture sector’s prospects are strengthened by the progress of the south-west monsoon and expansion in the total area sown under Kharif crops by 13.9 per cent up to July 31 over last year. Industrial production remained in contraction. The PMI shrank in July for the fourth consecutive month.
The main objectives were to prevent financial markets from freezing up; ensure normal functioning of financial intermediaries and ease the stress faced by households and businesses.
In order to further promote and facilitate an environment that can accelerate innovation across the financial sector, the RBI will set up an Innovation Hub in India. Further details about the Innovation Hub would be announced in due course.
It has been decided that stressed MSME borrowers will be made eligible for restructuring their debt under the existing framework, provided their accounts with the concerned lender were classified as standard as on March 1, 2020. This restructuring will have to be implemented by March 31, 2021.
An automated mechanism in e-Kuber system to provide banks more flexibility/discretion in managing their liquidity and maintenance of cash reserve requirements will be introduced soon.
To enhance the safety of cheque payments, it has been decided to introduce a mechanism of Positive Pay for all cheques of value Rs.50,000 and above. This will cover approximately 20 per cent and 80 per cent of total cheques by volume and value, respectively. Operational guidelines in this regard will be issued separately.
A scheme of retail payments in offline mode using cards and mobile devices and a system of on online dispute resolution (ODR) mechanism for digital payments will also be introduced.