Fri Dec 06 09:37:27 UTC 2024: ## RBI Holds Repo Rate Steady, Cuts CRR to Boost Liquidity Amidst Growth Slowdown

**Mumbai, India** – The Reserve Bank of India (RBI) Monetary Policy Committee (MPC) concluded its December meeting today with a decision to maintain the repo rate at 6.5%, marking the eleventh consecutive meeting without a change. This decision, reached by a 4-2 vote, prioritizes inflation control despite a significant slowdown in economic growth.

The MPC acknowledged the disappointing Q2 FY25 GDP growth of 5.4%, revising its FY25 GDP growth projection downward to 6.6% from 7.2%. However, the RBI expects a recovery in the second half of the fiscal year, projecting growth of 6.8% and 7.2% in Q3 and Q4 respectively.

To address concerns about liquidity tightness, the MPC implemented a 50 basis points cut in the Cash Reserve Ratio (CRR), reducing it to 4%. This move, implemented in two 25 bps tranches, will inject approximately ₹1.16 lakh crore (approximately $14 billion USD) into the banking system. The CRR cut aims to alleviate liquidity pressures, particularly ahead of tax outflows and the busy season.

While the repo rate remains unchanged, the RBI’s neutral stance suggests a potential rate cut in the future, possibly as early as February 2025, contingent upon inflation moderating as projected. The FY25 Consumer Price Index (CPI) inflation forecast has been revised upwards to 4.8% from 4.5%, primarily due to persistent food inflation. The RBI expects inflation to ease to 4.5% in Q4 FY25 and further to 4% in Q1 FY26.

The decision not to cut the repo rate reflects the MPC’s continued focus on managing inflationary pressures, particularly given the recent surge in food prices. Several analysts commented on the balanced approach, noting the need to carefully weigh inflation risks against the need to support economic growth. Others expressed some disappointment, arguing that a repo rate cut would have been a more effective stimulus given the significant GDP slowdown.

The RBI also announced several other initiatives, including the launch of a new AI-powered fraud detection system called Mulehunter.ai and an increase in the ceiling for FCNR(b) deposits to attract foreign currency inflows. These actions highlight the RBI’s broader efforts to strengthen the financial system and manage external vulnerabilities. The impact of these policies on various sectors, including real estate, banking, and small finance banks, is expected to vary.

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