Slowdown in investment activity, growth impulses have weakened significantly: RBI

MPC projects upward bias in food inflation in near term due to rising prices of food items.
On NBFC crisis, Shaktikanta Das assured that action will be taken whenever required.
Risks around the baseline inflation trajectory emanate from uncertainties relating to the monsoon, unseasonal spikes in vegetable prices, international fuel prices and their pass-through to domestic prices, geo-political tensions, financial market volatility and the fiscal scenario, RBI said.
RBI Governor Shaktikanta Das said they will ensure that adequate liquidity is there in the system.
Expressing concern on a sharp slowdown in investment activity along with a continuing moderation in private consumption growth, the MPC said growth impulses have weakened significantly as reflected in a further widening of the output gap compared to the April 2019 policy.
“Interest rates on longer tenor money market instruments remained broadly aligned with the overnight WACR, reflecting near full transmission of the reduction in policy rate,” the RBI report said.
On transmission of rate cuts, RBI noted that the transmission of cumulative reduction of 50 bps in the policy repo rate in February and April this year was 21 bps to the weighted average lending rate (WALR) on fresh rupee loans.

Inflation expectations of households in the May 2019 round of Reserve Bank’s survey declined by 20 basis points for the three-month ahead horizon compared with the previous round, but remained unchanged for the one-year ahead horizon.
-RBI has revised consumer price inflation forecast for the first half of fiscal year 2019-20 to 3-3.1% from 2.9-3% earlier, while the projection for the second half stands revised to 3.4-3.7% from 3.5-3.8% earlier.

-The MPC revised both its growth and inflation forecasts for the current fiscal. GDP growth has been revised downwards to 7% from the earlier projection of 7.2%. The MPC expects growth in in the range of 6.4-6.7% in the first half of FY20 and 7.2-7.5% in the second half.
The minutes of the MPC’s meeting will be published by June 20. The next meeting of the MPC is scheduled during August 5 to 7.

On developmental and regulatory policies after the Monetary Policy Committee’s meeting, the RBI said it levies minimum charges on banks for transactions routed through RTGS and NEFT system for other fund transfers. Banks, in turn, levy charges on their customers.
In order to provide an impetus to digital funds movement, it has been decided to do away with the charges levied by the RBI for transactions processed in the RTGS and NEFT systems, it said.Banks will be required, in turn, to pass these benefits to their customers. Instructions to banks in this regard will be issued within a week, the central bank said.
Meanwhile, the RBI has decided to set up a committee to review the charges levied on the use to ATMs as the usage by the public has been growing significantly. There have, however, been persistent demands to change the ATM charges and fees, the RBI noted.

In order to address these, it has been decided to set up a committee involving all stakeholders, under the chairmanship of the Chief Executive Officer, Indian Banks’ Association (IBA), to examine the entire gamut of ATM charges and fees.
The Committee is expected to submit its recommendations within two months of its first meeting, RBI Governor Shaktikanta Das told reporters here. The composition and terms of reference of the committee will be issued within a week, the central bank said.