Wednesday 14 April 2021
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EconomyRBI refuses to print extra notes; repo rate unchanged

RBI refuses to print extra notes; repo rate unchanged

Today, RBI also announced the cheque truncation system across the country by September 2020 to ensure cheques are cleared in a very short time

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Reserve Bank of India (RBI) Governor Shaktikanta Das said on Thursday that the central bank has no plans to print more rupees to meet the rising fiscal deficit. This is the third consecutive year the government has revised the fiscal deficit target. The fiscal deficit in the budget is projected to be 3.8% in the current financial year, while in the last budget it was expected to be 3.3%.

The fiscal deficit is estimated to be 3.5% for the next financial year 2020-21 while in July 2019 it was expected to be 3%. The government’s fiscal deficit has crossed 132% at the end of December.

The difference in the total income and expenditure of the government is called the fiscal deficit. This shows how much borrowing will be required by the government to run the business. The fiscal deficit is usually due to a decrease in income or an excessive increase in capital expenditure.

RBI governor explains

Das told reporters after the monetary policy review, “There are no plans to print additional notes to meet the fiscal deficit.” The government has used the exemption clause under the Fiscal Accountability and Budget Management (FRMB) Act in the budget. A 0.5% increase is available for fiscal deficit profiling.

“Given the evolving growth-inflation dynamic, the MPC felt it appropriate to maintain status quo on the policy repo rate but resolved to continue with the accommodative stance as long as necessary to revive growth, while ensuring that inflation remains within the target. The MPC also recognised that there is monetary policy space for future action,” Das’s statement read.

Explaining the backdrop of the policy decision, Das said, “As against the cumulative reduction in the policy repo rate by 135 bps since February 2019, transmission to various money and corporate debt market segments ranged from 146 bps (overnight call money market) to 190 bps (3-month CPs of non-banking finance companies). Transmission through the long(er) end of government securities market was at 73 bps (5-year government securities) and 76 bps (10-year government securities).”

The RBI governor wrote, “… transmission to the credit market is gradually improving. The 1-year median marginal cost of funds-based lending rate (MCLR) has declined by 55 bps during February 2019 and January 2020. The weighted average lending rate (WALR) on fresh rupee loans sanctioned by banks has declined by 69 bps and the WALR on outstanding rupee loans by 13 bps during February-December 2019.”

The external benchmark system introduced from 1 October 2019 has strengthened monetary transmission further, Das said. “Most banks have linked their lending rates for housing, personal and micro and small enterprises (MSEs) to the policy repo rate of the Reserve Bank. During October-December 2019, the WALRs of domestic banks (public and private sector) on fresh rupee loans declined by 18 bps for housing loans, 87 bps for vehicle loans and 23 bps for loans to micro, small and medium enterprises (MSMEs). These developments should amplify the effects of the cumulative policy rate reductions since February 2019 and help boost domestic demand going forward,” the RBI governor said.

Following the budget, the middle class sitting around waiting for the Reserve Bank of India (RBI), got disappointed on Thursday. RBI on Thursday decided to keep the repo rate at the level of 5.15 in the last bi-monthly monetary policy review meeting of the current financial year. The central bank has taken this step amid uncertain global environment and intensifying inflation in the domestic market and raising the fiscal deficit estimate in the budget.

Cheque clearance expedited

In another development, the RBI on Thursday announced the enforcement of the cheque truncation system across the country by September 2020. This implies your cheque will be cleared in a very short time. The RBI made this announcement during the last bi-monthly monetary policy review meeting of the current financial year.

The bank uses scanned copy instead of a physical copy of the cheque for settlement under CTS. This process makes the check clearing process partially electronic. The time of clearing the cheque in CTS is greatly reduced too.

Sometimes it happens that during physical clearing the check is lost, due to which the settlement is delayed, which will not happen now. According to bankers, at present, most checks are already cleared under CTS.

Some banks have even stopped taking non-CTS checks. Currently, the clearing of checks between scheduled commercial banks currently takes three working days. In the CTS process, the photograph of the check is captured in the bank. He is then sent to the clearinghouse and then to the Dravi Branch.

This is among such policy measures of the RBI that have a direct bearing on ordinary citizens’ routine lives. Recently, the RBI had ensured that no default feature of a debit or credit card would be pushed down a customer’s throat; from domestic to international uses, you will decide upon receiving the card how and where to use it

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