The Reserve Bank on Wednesday projected retail inflation to ease to 5.3 per cent in next fiscal from 6.5 per cent this year on assumptions of lower imported inflation, even though core inflation remains sticky. The RBI‘s inflation outlook for current fiscal has improved from 6.8 per cent projected earlier, to 6.5 per cent, on the back of steeper than expected decline in vegetable prices and Indian basket of crude at USD 95 a barrel. RBI Governor Shaktikanta Das said, quote, “Looking ahead, while inflation is expected to moderate in 2023-24, it is likely to rule above the 4 per cent target. The outlook is clouded by continuing uncertainties from geopolitical tensions, global financial market volatility, rising non-oil commodity prices and volatile crude oil prices. At the same time, economic activity in India is expected to hold up well,” unquote. The low volatility of the Indian rupee relative to peer currencies limits the impact of imported price pressures and other global spillovers. Consumer price index-based inflation in India moved below the upper tolerance level of 6 per cent during November-December 2022, driven by a strong decline in prices of vegetables. Core inflation, however, remains sticky, the RBI said.
Moving on to the news on finance, The Reserve Bank of India has decided to permit all inbound travellers to use UPI payments for their merchant payments while they are in the country. This facility will be initially extended to travellers from G20 countries arriving at select international airports, RBI Governor Shaktikanta Das said. Commenting on the RBI decision, Rajsri Rengan, Head of Banking and Payments, India and Philippines, FIS, said, quote, “The RBI’s announcement around extending UPI facility for inbound travellers to India is a great initiative. Customers coming to India will now be able to use UPI while carrying out P2M transactions. This is a great move to scale up the use of digital payments in India as well as improve their payment experience.” unquote. Recently, UPI access to Non-Resident Indians (NRIs) having international mobile numbers linked to their NRE/NRO accounts was provided. The facility will soon be available to all inbound travellers, starting with those from G20 countries.
Meanwhile, The RBI Governor Das announced the advent of a new facility, the ability to use UPI at coin vending machines instead of tendering physical banknotes. The RBI Governor said, quote.“These vending machines will dispense coins against debit to the customer’s account using UPI instead of physical tendering of banknotes. This will enhance the ease of accessibility to coins,” unquote. Coin vending machines allow the exchange of bank notes into coins, thus increasing the circulation. RBI Guv Das said, quote, “Based on the learnings from the pilot, guidelines will be issued to banks to promote distribution of coins using these machines,” unquote. The Reserve Bank of India hiked its key repo rate by 25 basis points on Wednesday as expected but surprised markets by leaving the door open to more tightening, saying core inflation remained high. The central bank said that its policy stance remains focused on the withdrawal of accommodation, with four out of six members voting in favour of that position. Most analysts had expected a hike on Wednesday to be the final increase in the RBI’s current tightening cycle, which has seen it raise rates by 250 bps since May last year.
In news from economy, India’s largest IT services firm Tata Consultancy Services has won an over £600 million (about $723 million) contract with Phoenix Group, UK’s largest long-term savings and retirements provider, to digitally transform the latter’s ReAssure business using the TCS BaNCS-based platform. The deal is an expansion of TCS’s long-standing partnership with the Phoenix Group. Phoenix Group acquired ReAssure, a UK-based life insurance provider, in 2020, and has now engaged with TCS to drive synergies and enhance customer experience for ReAssure’s policyholders. Through the expanded partnership, TCS will help Phoenix transform the end-to-end customer service through self-service across channels and analytics to enhance customer satisfaction and retention. TCS said it will leverage its Innovation Lab in the UK to enhance the experience for policy holders, advisers, employers, and operational staff, and to improve the service quality for Phoenix Group’s customers. The deal comes at a time when large deals have not been robust for Indian IT services companies in the past few quarters as clients are preferring shorter and smaller deals that can be renewed as and when necessary.
Lastly, Indian equity indices surged on Wednesday after RBI MPC raised the key interest rate by 25 basis points, taking the repo rate to 6.5%. The rate hike was in line with market expectations. The Nifty closed above 17850 and Sensex settled above 60650.