Fri Dec 06 09:12:44 UTC 2024: **RBI Holds Repo Rate Steady, Cuts CRR Amidst Inflationary Concerns and Growth Slowdown**

MUMBAI, INDIA – The Reserve Bank of India (RBI) concluded its monetary policy meeting today, deciding to maintain the repo rate at 6.5% for the eleventh consecutive time. While acknowledging a slowdown in GDP growth to 5.4% in Q2 (the lowest in seven quarters), the RBI cited lingering inflationary pressures as the reason for holding the key interest rate. Headline inflation reached 6.2% in October, exceeding the RBI’s comfort zone.

However, in a move to ease liquidity concerns and support economic activity, the RBI announced a 50 basis point reduction in the Cash Reserve Ratio (CRR) to 4%, effective in two tranches starting December 14th. This is expected to inject ₹1.1 trillion ($12.98 billion) into the banking system, potentially lowering market interest rates and benefiting MSMEs.

The RBI’s decision reflects a cautious approach, balancing the need to stimulate growth with the imperative of controlling inflation. Governor Shaktikanta Das emphasized the importance of “prudence, practicality, and timing” in policy decisions, indicating a wait-and-see approach regarding future rate cuts. He projected GDP growth at 6.6% for FY25, revised down from earlier estimates. Inflation is projected at 4.8% for FY25, with expectations of easing in the coming quarters.

The meeting also saw several other announcements aimed at boosting financial inclusion and credit availability. These include allowing small finance banks to offer pre-approved credit lines via UPI, increasing the limit for collateral-free agricultural loans to ₹2 lakh per borrower, and linking the FX retail platform with the Bharat Connect platform. The RBI also highlighted the resilience of India’s external sector. The introduction of “mulehunter.ai,” an AI-based model to combat digital fraud, was also announced.

While some economists anticipated a repo rate cut, given the recent growth slowdown and foreign investor purchases of Indian bonds, the RBI’s decision to hold rates steady reflects its ongoing prioritization of inflation control. The CRR cut, however, signals a willingness to utilize alternative tools to support the economy in the near term. The market reacted positively to the CRR cut, with the BSE Sensex closing over 800 points up on Thursday. The RBI indicated that future policy decisions will be data-driven, suggesting the possibility of rate cuts in the future if inflation continues to moderate.

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