The RBI MPC, reaching its half a century mark in an eventful stride since 2016, delivered the rate based outcomes along expected lines (and, with expected majority of 4-2) while the tone and pitch signalled the near optimal factoring of clouds gathering on multiple fronts despite domestic macros continuing a robust forward march; an intense monsoon locally with uneven spatial distribution that can dismantle the maths behind food price led inflation and its interlinkage with households expectations, challenging outlook on merchandise trade as the largest economy signals a cooling off phase, smooth transmission of yields and premiums across various terms and products against ever changing landscape of liquidity. The need for synchronising stance, facilitating actual rate pivot thus assume greater significance in uber uncertain times.
The emphasis of the governor, even when the fragmented MPC pledged support to keep the policy rates unchanged ninth times in a row in line with broader market expectations, remained on the skewed probability of downside risks gaining currency, dismantling the present equilibrium where risks appear evenly balanced and growth remains resilient, factoring in the choppiness prevailing in global markets. The rise of frenzied calls for the Fed to take a significant pivot, either through an off-cycle rate cut or slashing Federal Funds rate by as much as 50 bps in its ensuing Sept meet, is gaining currency as the largest economy stares at an imminent recession with the trigger of Sahm Rule being seen more of a leading indicator this time, aggravating the pain points as the lopsided jobs markets (full time as also part time), and spike in joblessness across whites and Asian sub-groups too, at vantage traditionally against Hispanics and people of color point to a rapidly cooling economic progression, having a ripple effect across global markets. This limits fiscal flexibility and further increases economic uncertainty as carry trades are greatly being unleveraged, the sell-off in risky assets nudging a vicious cycle to take-off.
The instability could prime other Central Banks too, with ensuing ECB meet in September dubbed ‘wide open’ by market watchers for a rate cut while the house of BoE delivered the first rate cut in four years last week, departing from a 16-years high rate through a 5-4 vote, though vouching to move ahead cautiously. BoJ, that unnerved the markets last week through whiplashing currency traders, by hiking its policy rate to around 0.25% from a range of 0 to 0.1% is busy assuring the investors now of no imminent rate hikes. To cut a long story short, the choices before most of the Central Banks suddenly appear between choosing a fire, or a frying pan, with a hurried action with little communication likely to fan more panic to markets / investors.
By addressing the likelihood of building up of risks in the system from different known-unknown quarters, the regulator has sent a clear and present message to faltering entities to bring their houses in order. While hailing the fall in unsecured credit flows through NBFCs / Credit Card issuers, often boosting want-centric consumption amidst different cohorts of lower strata, the regulator has also warned of excessive focus on top-up loans attached to otherwise secured loans viz. housing / gold which are eventually finding ways in speculative purposes. Plus, the concerns on stable, retail led deposit accretion to banks should nudge the stakeholders ramping up the efforts to reward the average depositors through efficient and effective mechanisms, including tax efficacy. The first piece of the jigsaw puzzle, though should ideally be to analyze the flows of household savings to myriad available avenues/channels.
In line with its concerns on rising household indebtedness in lower income deciles, the regulator has also shifted its action to online digital lending apps (DLA). With a view to provide information and differentiate between genuine lending apps and otherwise cohorts, RBI has decided to create a public repository of DLAs deployed by the REs which will be available on RBI’s website. It is expected that this measure will put some check on the digitalized loan shark business. RBI has also decided to alter the frequency of reporting to credit information companies (CICs). The altered frequency which is shortened from the present 30 days to 15-days is expected to give more up-to-date picture of a borrower’s indebtedness. Plus, borrowers will have the benefit of faster updation of information while lenders will be able to make better risk assessment of borrowers and also reduce the risk of overleveraging by borrowers.
On the payments side, the present policy enhances the limit of UPI based payment of taxes from Rs 1 lakh to Rs 5 lakh (limits were earlier increased too for other eligible purposes in Dec 21 and Dec 23). Self-Assessment tax constitutes around 7% of the total gross direct receipt. By easing the limit, transactions through UPI will get a boost in alternate uses too. Furthermore, it is proposed to introduce “Delegated Payments” in UPI. “Delegated Payments” would allow an individual (primary user) to set a UPI transaction limit for another individual (secondary user) on the primary user’s bank account. This allows the primary user to authorise another individual to make UPI transactions from its own bank account. RBI also proposed to transition CTS from the current approach of batch processing to continuous clearing with ‘on-realization’ settlement, reducing from the present T+1 days to a few hours, helping customers in releasing their value quickly even as the cheque settlements stagnate.
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