Monetary Policy: Key Takeaways from February Policy Review

The Reserve Bank of India (RBI) kept the repo rate unchanged at 5.15 per cent in sixth bi-monthly policy review

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For the second time in a row, the Reserve Bank of India (RBI) kept the repo rate unchanged at 5.15 per cent in February monetary policy review.


Just like the December review, all the six members of the Monetary Policy Committee (MPC), headed by RBI Governor Shaktikanta Das, voted in favor of keeping the rates unchanged this time as well.

The central bank maintained its accommodative stance to revive growth and assured there is policy space available for future actions. The MPC noted that the economy continues to be weak and the output gap remains negative. Most importantly, the path of inflation is elevated and on a rising trajectory through the March quarter, the RBI said.

Keeping these observations in view, the sixth bi-monthly policy review includes policy measures to improve credit flow in the economy. Steps to provide relief to commercial real estate and regulate the digital payments industry have also been introduced. Here are some of the key measures announced in the policy document:

  • The RBI will provide cash reserve ratio relief to scheduled commercial banks on incremental auto, retail housing and all MSME loans. This step is aimed at incentivizing banks to lend to these sectors.

“Alongside sustained efforts to improve monetary transmission, the Reserve Bank is actively engaged in revitalizing the flow of bank credit to productive sectors having multiplier effects to support impulses of growth,” the central bank stated.

  • The RBI noted that the introduction of an external benchmark system has improved the monetary transmission to some sectors. To further strengthen monetary transmission, the central bank has decided to link pricing of loans by scheduled commercial banks for the medium enterprises to an external benchmark effective April 1, 2020.
  • For projects in commercial real estate sector that are delayed for reasons beyond the control of promoters, extension of one year will be provided to commence operations.
  • Like other commercial banks, regional rural banks (RRBs) have been permitted to act as merchant acquiring banks, using Aadhaar Pay, BHIM app and POS terminals. This move aims to push digital banking and enable regional rural banks (RRBs) to provide cost effective and user-friendly solutions to their customers.
  • A framework to establish a Self-Regulatory Organisation (SRO) for the digital payment system will soon be released. The SRO will foster best practices on security, customer protection and pricing, among others, in the digital payment space and serve as a two-way communication channel between the players and the regulator/supervisor.

“With substantial growth in digital payments and maturity gained by entities in the payment ecosystem, it is desirable to have a Self-Regulatory Organisation (SRO) for orderly operations of the entities in the payment system,” said the policy document.

  • A “Digital Payments Index” (DPI) will be constructed to capture the extent of digitisation of payments effectively. DPI will be published periodically.

"The DPI would be based on multiple parameters and shall reflect accurately the penetration and deepening of various digital payment modes. The DPI will be made available from July 2020 onwards," RBI said.

Financial industry has welcomed the move to form DPI. "This initiative will enable companies to gauge the ground-level effectiveness of the various programs running across the country. The index will also assist the financial payments ecosystem to identify areas of growth and improvement for widespread permeation of cashless payments," said Anand Kumar Bajaj, MD & CEO, PayNearby.

Mandar Agashe, Founder & Vice Chairman, Sarvatra Technologies thinks the move will help to map the level of digitisation across the country. "It will be beneficial for us to understand usage of digital channels in urban and rural areas. Banks and Payment companies will get to know which channels are more popular among consumers," he said.