Fri Dec 06 08:22:21 UTC 2024: ## RBI Holds Repo Rate Steady at 6.5%, Cuts CRR Amidst Growth Slowdown and Inflationary Pressures

**Mumbai, India** – The Reserve Bank of India (RBI) concluded its three-day Monetary Policy Committee (MPC) meeting today, maintaining the repo rate at 6.5% for the eleventh consecutive time. However, in a move to boost liquidity, the central bank cut the Cash Reserve Ratio (CRR) by 50 basis points to 4%, releasing ₹1.16 lakh crore (approximately $14 billion USD) into the banking system.

The decision comes against a backdrop of slowing economic growth and persistent inflationary pressures. The RBI revised its FY25 growth forecast downward to 6.6% from an earlier projection of 7.2%, citing a weaker-than-expected Q2 growth of 5.4%. Inflation, driven largely by a spike in food prices, remains a key concern, with the RBI projecting full-year inflation at 4.8%, up from its previous estimate of 4.5%. October’s CPI inflation reached 6.21%, exceeding the RBI’s comfort zone of 4% (±2%).

While the MPC acknowledged the growth slowdown, Governor Shaktikanta Das emphasized the importance of maintaining price stability. He stated that the decision to hold the repo rate reflects a “prudent and cautious approach,” opting to wait for greater clarity on the growth and inflation outlook before considering further rate adjustments.

The CRR cut, the first since March 2020, is intended to alleviate liquidity constraints and support lending. However, experts remain divided on the timing of future rate cuts. Some analysts anticipate a rate cut as early as February 2025, contingent on inflation easing below 5%, while others believe a reduction is unlikely before April 2025.

The market reacted neutrally to the announcements, with bond yields and stock indices showing little immediate change. However, the long-term impact of the CRR cut and the continued focus on inflation control will be closely watched. The RBI also announced plans to introduce a new benchmark interest rate, the Secured Overnight Rupee Rate (SORR), and to link its FX-Retail platform with the Bharat Connect platform for improved accessibility and transparency. The external sector remains resilient, with robust services exports and FDI inflows offsetting some moderation in net FDI.

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