Loans will get more expensive, credit cards will be tied to UPI: Five new RBI announcements

The Reserve Bank of India (RBI) on Wednesday maintained its growth projection at 7.2% for the current financial year thanks to improving urban demand and a gradual recovery in rural India. Unveiling the third monetary policy for the current fiscal year, RBI Governor Shaktikanta Das said India’s economy remained resilient and the central bank would continue to support growth. Here are 5 new announcements made by the RBI:

1. The RBI expects growth of 16.2% in the first quarter of the current financial year, which will decline to 4% in the fourth quarter. Das, however, warned that the ongoing Russian-Ukrainian war poses risks. Earlier in April, the central bank cut the GDP growth projection for 2022-2023 to 7.2% from its previous forecast of 7.8%.

The World Bank on Tuesday cut India’s economic growth forecast for the current fiscal year to 7.5% as rising inflation, supply chain disruptions and geopolitical tensions slow recovery. It was the second time the World Bank revised its GDP growth forecast for India for the current fiscal year 2022-23 (April 2022 to March 2023). In April, he cut the forecast from 8.7% to 8% and now it is projected at 7.5%.

GDP growth compares to an 8.7% expansion in the previous fiscal year 2021-22. India’s economy grew by 4.1% in the January-March quarter of 2021-22.

2. On Wednesday, the RBI allowed credit cards to be linked to the Unified Payments Interface (UPI), which will allow more people to make payments using the popular platform. Currently, UPI facilitates transactions by linking savings accounts or checking accounts through users’ debit cards.

“It is proposed to allow credit card linking at UPI,” RBI Governor Shaktikanta Das said in announcing the regulatory measures, along with the bi-weekly policy review. He said that to start with, Rupay credit cards issued by National Payments Corporation of India (NPCI) promoted by the RBI will be activated with this feature, and the feature will be made available after system developments.

Das said the new arrangement should provide more options and convenience for customers to make payments through the UPI platform.

UPI has become the most inclusive payment method in India, with over 26 crore unique users and 5 crore merchants integrated on the platform, he added.

In May, 594.63 crore transactions amounting to Rs 10.40 lakh crore were processed through UPI, Das said.

The interoperability of prepaid payment instruments (PPIs) has also made it easier for PPIs to access the UPI payment system to initiate transactions, Das said.

3. RBI raised the interest rate by 50 basis points to a two-year high of 4.9 percent as it doubled to rein in inflation which has surged in the past two months. The rate hike comes on the heels of a 40 basis point hike made by RBI at an unscheduled meeting on May 4.

The six-member Monetary Policy Committee (MPC), headed by RBI Governor Shaktikanta Das, voted unanimously for the latest rate hike, which is expected to make lending more expensive.

Inflation based on the consumer price index (CPI), which RBI takes into account when setting its monetary policy, has galloped for the seventh consecutive month to an 8-year high of 7.79% in April.

4. RBI raised the inflation projection for the current financial year to 6.7% from 5.7% forecast in April. RBI Governor Shaktikanta Das said inflation risk remains and the recent tomato price spike will fuel food inflation. In addition, high world crude oil prices would add upward pressure on inflation.

The upward revision to inflation projections comes as domestic retail inflation has remained above the RBI’s 6% comfort level for four consecutive months, mainly due to the Russian-Ukrainian war. which has had an impact on commodity prices around the world.

As part of the fortnightly monetary policy, Das raised the inflation projection for the current fiscal year to 6.7%. He predicted inflation of 7.5% in the June quarter (Q1) and 7.4% in the September quarter (Q2).

Inflation is expected to decline to 6.2% in the December quarter (Q3) and further decline to 5.8% in the March quarter (Q4) of this fiscal year.

5. RBI Governor Shaktikanta Das said on Wednesday that the central bank will ensure the availability of adequate liquidity to meet the productive needs of the economy.

“Going forward, while normalizing the extraordinary accommodation of pandemic-related liquidity over a multi-year period, the RBI will ensure the availability of adequate liquidity to meet the productive needs of the economy,” Das said during the announcement of monetary policy.

The RBI will also remain focused on the orderly completion of the government’s borrowing programme.