The Reserve Bank of India's Monetary Policy Committee, at the conclusion of its October 2024 meeting on October 9, 2024, kept the policy repo rate unchanged at 6.50 per cent for the tenth consecutive meeting. In a significant development, the MPC changed its policy stance from "withdrawal of accommodation" to "neutral," signalling a potential pivot towards rate reductions in future meetings. The RBI also announced enhancements to the Unified Payments Interface, including an increase in the UPI Lite wallet limit.
Background
The RBI's Monetary Policy Committee had maintained the repo rate at 6.50 per cent since February 2023, following a series of rate increases that had cumulatively raised the policy rate by 250 basis points from 4.00 per cent to address post-pandemic inflationary pressures. The stance of "withdrawal of accommodation" had been in place since April 2022, reflecting the MPC's intent to drain excess liquidity from the financial system.
The shift in stance had been anticipated by financial markets following moderating inflation readings and strong GDP growth data. Consumer price inflation had trended towards the RBI's four per cent target, though food price volatility continued to pose upside risks. The GDP growth projection for 2024-25 was maintained at 7.2 per cent, indicating robust economic activity that provided the MPC flexibility in its monetary policy calibration.
Key Provisions
The October 2024 monetary policy statement contained the following principal elements:
Repo rate unchanged: The policy repo rate was retained at 6.50 per cent. The standing deposit facility rate remains at 6.25 per cent and the marginal standing facility rate at 6.75 per cent.
Stance change to neutral: The MPC voted to change the stance from "withdrawal of accommodation" to "neutral" by a majority of five to one. The neutral stance affords the MPC flexibility to move in either direction — towards rate cuts or rate increases — based on evolving macroeconomic conditions.
Growth and inflation projections: GDP growth for 2024-25 was projected at 7.2 per cent. CPI inflation was projected at 4.5 per cent for the fiscal year, with the RBI noting that while headline inflation was trending towards target, food price pressures warranted continued vigilance.
UPI Lite enhancements: The per-transaction limit for UPI Lite was retained at Rs 500, but the overall wallet limit was increased from Rs 2,000 to Rs 5,000, enabling greater usage for small-value payments without the need for a full UPI transaction with bank authentication.
Delegated payments in UPI: The RBI introduced the concept of delegated payments in UPI, allowing a primary user to set a UPI transaction limit for another person on their account, enabling payments by family members or authorised individuals within prescribed limits.
Implications for Practitioners
The stance shift from "withdrawal of accommodation" to "neutral" is the most consequential signal for financial markets and banking sector practitioners since the rate hike cycle concluded. While the rate itself remains unchanged, the neutral stance removes the directional bias towards tightening, making a rate cut in December 2024 or early 2025 a realistic possibility.
For banking and finance lawyers advising on lending documentation, the shift suggests that floating rate benchmarks linked to the repo rate may begin declining in the near term. Practitioners drafting or renegotiating loan agreements should consider the implications for interest rate reset mechanisms and prepayment provisions.
The UPI Lite and delegated payments developments require attention from fintech and payments law practitioners. The delegated payments feature introduces new questions around authorisation, liability for unauthorised transactions, and the scope of the primary account holder's responsibility. Financial institutions offering UPI services will need to update their terms of service and customer agreements to accommodate these new functionalities.