RBI Raises Repo Rate by 50 bps to 5.4%

The Reserve Bank of India (RBI) Monetary Policy Committee hiked the benchmark repo rate by 50 basis points—its third straight increase—in its continuing efforts to quell inflation in the economy. The committee had first raised rates by 40 basis points at an unscheduled meeting in May, followed by 50 basis points in June. 
 
Following the review, the MPC decided: 
 
  • To raise the repo rate to 5.4% unanimously. 
  • The standing deposit facility rate, pegged 25 basis points below the repo rate, is adjusted to 5.15%. 
  • The marginal standing facility rate, which is 25 basis points above the repo rate, is now at 5.65%.
 
The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.While the decision on the rate hike was unanimous, committee member Jayanth R. Varma expressed reservations on the wording of the stance.
 
The inflation forecasts suggest that, for the first time under the new framework, the RBI will be seen to have failed in its inflation objective. Failure is defined as three consecutive quarters of above target inflation and requires the central bank to explain the failure in a letter to the government.
 
On the other hand, elevated risks emanating from protracted geopolitical tensions, the upsurge in global financial market volatility and tightening global financial conditions continue to weigh heavily on the outlook.
 
Going forward the RBI will remain vigilant on the liquidity front and conduct two-way fine-tuning operations as and when warranted – both variable rate repo and variable rate reverse repo operations of different tenors, depending on the evolving liquidity and financial conditions, Governor Shaktikanta Das stated.
 

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Changes in Our Business Model
 
 
25th Sept 2020
 
Greetings from Moneylife Advisory Services
 
Between financial years 2019-21, SEBI has come up with extensive changes to investor advisor regulations. On Sep 23, 2020, SEBI had issued new additional guidelines. This comes just two months after extensive changes announced in July 2020. Earlier, in December 2019 there was an ad hoc circular
 
As a result of these changes, IAs, cannot accept fees through credit cards, will have to sign a 26-clause investor agreement, have to maintain physical record written & signed by client, telephone recording, emails, SMS messages and any other legally verifiable record for five years. IAs were already asked to record the suitability and rationale for every piece of advice given, sign them and store them for five years.
 
While these extensive and frequent changes, designed to strengthen the conduct of IAs are well-meaning, these have sharply increased compliance efforts and cost. We, being online advisors, find many of changes harder to implement, compared to advisors working in the physical space. We will have to have an army of advisors, administrative and tech staff to be compliant. If we do this, we will have to divert money to these areas and the cost of our service will double. We want to remain the least-cost service in the market to benefit more and more people. In the circumstances, we are forced to change our business model from “advisory” to “research”. This will mean the following:
 
What remains the same:
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  • The magazine and all textual content will remain as part of the service
  • We will have to suspend the restructuring tool.
 
What changes:
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Over the next few weeks our site and our communication to you will reflect these and other additional changes.
 
We feel this will not affect you much in terms of what really matters in investing: knowing what to buy and when to buy. This is our edge and it will still be available to you.
 
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Debashis Basu
Founder