The Reserve Bank of India's Monetary Policy Committee, at the conclusion of its meeting on 5 April 2024, decided to keep the policy repo rate unchanged at 6.50 per cent for the seventh consecutive time. RBI Governor Shaktikanta Das announced that the MPC voted by a majority of 5:1 to maintain the status quo on rates while retaining the stance of "withdrawal of accommodation," signalling the central bank's continued focus on aligning inflation durably with the 4 per cent target.
Background
The decision to hold rates steady continues the pause that began in April 2023, when the RBI last raised the repo rate. Since February 2023, the MPC has increased the repo rate by a cumulative 250 basis points from 4.00 per cent to 6.50 per cent in response to elevated inflation following the Russia-Ukraine conflict and global supply chain disruptions.
The April 2024 policy review was framed against a macroeconomic backdrop of robust domestic growth, moderating but still volatile food inflation, and uncertainty in the global economic environment. The Indian economy had registered GDP growth of 8.4 per cent in the third quarter of FY24, exceeding most estimates, providing the MPC with room to maintain its inflation-focused stance without concerns about growth contraction.
The policy announcement also gained significance as it was the first monetary policy statement in the run-up to the Lok Sabha general elections, with Phase 1 of voting scheduled for 19 April 2024.
Key Provisions
The MPC resolution and developmental regulatory announcements included the following:
Repo rate unchanged: The policy repo rate remains at 6.50 per cent. The standing deposit facility rate stays at 6.25 per cent and the marginal standing facility rate at 6.75 per cent.
Stance maintained: The MPC retained the stance of "withdrawal of accommodation" with a 5:1 majority, with one member voting for a change to a neutral stance.
Growth projection upgraded: The RBI projected real GDP growth at 7.0 per cent for FY25 (2024-25), reflecting strong domestic demand, improving investment activity, and a recovering global trade environment.
Inflation projection: CPI inflation was projected at 4.5 per cent for FY25, with the quarterly trajectory indicating moderation but continued vigilance on food prices.
UPI tax payment limit enhanced: The RBI raised the per-transaction limit for UPI payments towards tax collection from Rs 1 lakh to Rs 5 lakh, facilitating digital payment of direct and indirect taxes.
UPI 123Pay limit doubled: The transaction limit for UPI 123Pay — the feature-phone-based UPI service for users without smartphones — was doubled from Rs 5,000 to Rs 10,000, broadening financial inclusion in digital payments.
Implications for Practitioners
The seventh consecutive hold signals that the RBI's rate-tightening cycle has conclusively paused, though a pivot to rate cuts remains data-dependent. Banking and finance practitioners advising lending institutions should anticipate that the current rate environment will persist for at least another quarter, with any rate reduction unlikely before the second half of FY25 at the earliest.
The enhancement of UPI transaction limits for tax payments is particularly consequential for tax practitioners and their clients. The fivefold increase to Rs 5 lakh enables UPI-based payment of advance tax instalments and self-assessment tax for a significantly larger base of individual taxpayers, reducing dependence on net banking for tax compliance.
For fintech companies and payment service providers, the doubling of the UPI 123Pay limit opens additional market opportunities in semi-urban and rural areas where feature phones remain prevalent. Compliance teams should update their transaction processing systems to reflect the revised limits.