RBI’s December Monetary Policy Review and Latest Directives in

Banking System
• On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary
Policy Committee (MPC) at its meeting on December 4, 2020 decided to keep the key interest rates
unchanged, repo at 4% and reverse repo at 3.35%, for the third straight time. The Marginal
Standing Facility (MSF) rate and the Bank Rate is at 4.25 percent.

• The MPC also decided to continue with the accommodative stance as long as necessary – at least
during the current financial year and into the next financial year – to revive growth on a durable
basis and mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains
within the target going forward.

• As per MPC review, CPI inflation is projected at 6.8 percent for Q3:2020-21, 5.8 percent for
Q4:2020-21; and 5.2 percent to 4.6 percent in H1:2021-22, with risks broadly balanced.

• Turning to the growth outlook, the recovery in rural demand is expected to strengthen further,
while urban demand is also gaining momentum as unlocking spurs activity and employment,
especially of labour displaced by COVID-19.

• Real GDP growth is projected at -7.5 percent in 2020-21: +0.1 percent in Q3:2020-21 and +0.7
percent in Q4:2020-21 and +21.9 percent to +6.5 percent in H1:2021-22, with risks broadly
balanced.

• The MPC is of the view that inflation is likely to remain elevated, barring transient relief in the
winter months from prices of perishables. This constrains monetary policy at the current juncture
from using the space available to act in support of growth. At the same time, the signs of recovery
are far from being broad-based and are dependent on sustained policy support.

• Further efforts are necessary to mitigate supply-side driven inflation pressures. Monetary policy
will monitor closely all threats to price stability to anchor broader macroeconomic and financial
stability.

• In a big blow to HDFC Bank, the Reserve Bank of India on December 2 asked the private lender
to temporarily stop all launches of its digital business generating activities under “Digital 2.0"
programme which is HDFC’s strategy to digitise customer experience through initiatives like
virtual banking and analytics. This includes sourcing of new credit card customers.

• The regulator issued an order on December 2 with regards to certain incidents of outages in HDFC
Bank's internet banking, mobile banking and payment utilities over the past 2 years. This also
includes recent outages in the bank’s internet banking and payment system on November 21 due
to a power failure in the primary data centre.

• In order to expand the purview of digital payments and enhance security, the Reserve Bank of India
(RBI) announced on December 4 that limits for contactless card transactions will be raised with
effect from January 1, 2021.
• The limit for contactless card payments (that is, payments which do not require a pin number) and
recurring transactions through cards and UPI has been raised to Rs 5,000 from Rs 2,000 earlier.

• RBI Governor also said that RTGS system will soon be made available 24x7 in the next few days.
With this enablement, it is proposed to reduce settlement and default risk in the system by
facilitating settlement of AePS, IMPS, NETC, NFS, RuPay, UPI transactions on all days of the
week instead of five days earlier.

References: https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=50747

https://www.livemint.com/companies/news/hdfc-bank-outages-rbi-tells-bank-to-stop-sourcing-
new-credit-card-customers-11606973498182.html

https://www.financialexpress.com/money/boost-for-digital-india-as-rbi-to-set-digital-payment-
security-control/2143718/