Fri Dec 06 05:05:28 UTC 2024: **RBI Holds Repo Rate Steady, Cuts CRR to Boost Economy**

MUMBAI, INDIA – The Reserve Bank of India (RBI) today announced its fifth bi-monthly monetary policy for fiscal year 2025, keeping the benchmark repo rate unchanged at 6.5% for the eleventh consecutive meeting. However, in a surprise move, the Monetary Policy Committee (MPC) reduced the cash reserve ratio (CRR) by 50 basis points to 4%, injecting ₹1.16 lakh crore (approximately $14 billion USD) into the banking system.

The decision to maintain the repo rate, while lowering the CRR, reflects the RBI’s efforts to balance economic growth with inflation control. Governor Shaktikanta Das cited the prolonged and arduous process of disinflation as a key factor in the decision. While the MPC forecast inflation at 4.8% for FY25, it significantly lowered its GDP growth estimate for FY25 to 6.6%, down from a previous projection of 7.2%. This downward revision reflects India’s weaker-than-expected Q2 GDP growth of 5.4%, the lowest since Q3 2022-23.

The CRR cut is intended to improve banking system liquidity and stimulate lending, addressing concerns about slowing credit growth and private consumption. Analysts expressed mixed reactions, with some welcoming the liquidity injection as a positive step to support economic activity, while others noted the potential for the move to put downward pressure on the Indian Rupee. The Rupee opened 9 paise higher against the US dollar following the announcement. The stock market indices, Sensex and Nifty 50, also reacted positively to the news.

While some experts anticipate potential repo rate cuts in the future, the RBI maintained a ‘neutral’ monetary policy stance for now, prioritizing price stability alongside growth. The timing of any future rate cuts remains uncertain, given global economic uncertainties and the ongoing need to manage inflation and the Rupee’s exchange rate.

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