Differential rates on deposits beyond RBI norms not acceptable, says Governor, Pg1

Key Highlights:

• RBI Governor Sanjay Malhotra stated that undisclosed preferential interest rates on deposits are unacceptable, while differential rates for categories like senior citizens are permitted.
• The Monetary Policy Committee (MPC) maintained a status quo on policy rates and stance in its second bi-monthly meeting for the year.
• The MPC revised FY2027 real GDP growth projection downwards to 6.6 percent from 6.9 percent and raised CPI inflation projection to 5.1 percent from 4.6 percent.
• The Reserve Bank of India (RBI) announced measures to attract foreign capital inflows, including expanding the Fully Accessible Route (FAR) for Government Securities (G-secs) and increasing limits for NRI/OCI equity investments.

Detailed Insights:

• The RBI permits differential deposit rates based on categories like senior citizens or tenure, emphasizing transparency in rate display.
• The MPC's hawkish tone was influenced by the West Asia conflict, potential El Niño development, and sub-par monsoons.
• Despite lower growth projections, the MPC anticipates continued momentum in urban consumption, investment activity, and services exports.
• Risks to growth include elevated energy prices, geopolitical uncertainty, weak monsoon forecast, and potential fiscal slippage.
• Inflation risks remain tilted to the upside due to sub-par monsoon and global supply-chain disruptions.
• The MPC noted upside risks to inflation and downside risks to growth for the second consecutive policy review.
• A future rate hike is likely, with its timing dependent on geopolitical and macro developments, including El Niño's severity.
• The weakness in the rupee and projected doubling of the Current Account Deficit (CAD) to 2 percent of GDP in FY2027 necessitated capital inflow measures.
• RBI's measures include exempting Foreign Portfolio Investors (FPIs) from capital gains tax on G-secs and removing various limits for FPIs under the general route.
• Other steps include increasing investment limits for NRIs and OCIs in equity instruments and introducing a concessional forex swap facility for FCNR (B) deposits.
• These measures could facilitate the inclusion of Indian G-secs in the Bloomberg Bond Index and support India's balance of payments.

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