RBI Monetary Policy Meeting outcome: Shaktikanta Das-led MPC keeps repo rate unchanged at 6.5%, cuts CRR by 50 bps to 4%

Major Policy Decisions

CRR Reduction:

• The RBI lowered the Cash Reserve Ratio by 50 basis points: going down from 4.5% to 4%.
• The above CRR will unlock Rs 1.16 lakh crore in liquidity, thereby strengthening banks’ lending capability. CRR is that part of total deposit of a bank which is required to be kept in liquid cash with RBI.
• Repo Rate Left Unchanged: The Monetary Policy Committee (MPC) resolved to keep the repo rate at 6.5% in a 4-2 majority vote. The 11th straight policy announcement by Repo rate in 22 months without an alteration.

Economic Growth & Inflation Forecast

• Economic growth forecast downward revision:
• The projection of growth in Gross Domestic Product during FY2025 has been revised down to a growth of 6.6 per cent as against earlier estimated growth of 7.2 per cent.
• These require a revision in growth forecasts on the basis of the second quarter of the year, with particular impact.
• Growth is recovering nonetheless on festive demand and rural consumption. – Inflation forecast has increased:
  -The forecast for retail inflation for FY2025 is now 4.8%; it was previously forecast at 4.5%.
  –Inflation has gone up to 6.21% in October 2024, its highest level in 14 months, primarily due to prices of food.

Reasons Behind CRR Cut

Liquidity Infusion for Banks:

• This cut in CRR aims at providing liquidity infusion to the financial system, which has been sucked dry due to RBI’s intervention in stabilizing the rupee.
• Rs 1.16 lakh crore will be available now for lending, and can therefore help in stimulating economic growth.
• Impact on Bank Lending: The Total available funds will induce more lending at banks.