The Reserve Bank of India (RBI), under the leadership of Governor Shaktikanta Das, announced the fifth bi-monthly monetary policy of FY25 on December 6, maintaining the benchmark repo rate at 6.5% for the eleventh consecutive meeting. The Monetary Policy Committee (MPC) also retained its ‘Neutral’ policy stance, reflecting a cautious approach amidst evolving economic conditions.
Key Highlights from the Policy Announcement:
- Repo Rate Unchanged: The MPC decided to keep the repo rate steady at 6.5%, in line with market expectations, ensuring stability in borrowing costs.
- CRR Cut to 4%: The RBI slashed the Cash Reserve Ratio (CRR) by 50 basis points to 4%, injecting ₹1.16 lakh crore of liquidity into the banking system. The measure is aimed at addressing liquidity deficits and stimulating economic growth.
- Revised GDP Growth Forecasts:
- FY25 growth projection was cut to 6.6% from 7.2%.
- Quarterly forecasts for FY25 were also adjusted downward, reflecting cautious optimism.
- Focus on Unclaimed Deposits: To address the issue of unclaimed deposits, the RBI has directed banks to segregate beneficiary accounts through Direct Benefit Transfers (DBT), ensuring better tracking and resolution.
- New Benchmark Rate Proposed: The RBI proposed a secured overnight rupee rate based on overnight market repo and TREPS transactions, aimed at enhancing market transparency.
- Interest Rate Hikes for FCNR-B Deposits: To attract more foreign investments, the RBI announced an immediate hike in the interest rate ceilings for FCNR-B deposits.
- Innovative Communication: Governor Das revealed plans to launch RBI podcasts to foster engagement and transparency with the public.
V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services stated, “Monetary policy has delivered exactly what the economy and markets need in the present context. The Governor’s emphasis on price stability is appropriate given the elevated level of inflation. The decision to cut the CRR by 50bp facilitating injection of Rs 1.16 trillion of liquidity into the system will ease the liquidity constraints and more importantly reduce the banks’ cost of funds. From the market perspective, this is an excellent policy response. Banking stocks will remain resilient.”
Shishir Baijal, Chairman and Managing Director, Knight Frank India said, “As anticipated, the RBI has maintained its pause on interest rates. The central bank is currently grappling depreciating INR, softening bond yields, persistent inflation, and a slowdown in growth. Although the growth deceleration is not yet alarming, it provides the RBI with enough leeway to keep interest rates unchanged, focusing on controlling inflation and stabilizing the currency.
However, the continued shift towards a neutral stance suggests that the central bank’s focus is gradually moving from inflation control to supporting growth. At this point, a rate cut would be more beneficial for consumers, including home buyers, as borrowing costs remain high despite the unchanged repo rate. The growth in home loans has slowed, and consumption among lower-income groups has significantly decreased, as witnessed in sharp moderation in sales of affordable housing”
Governor Das reaffirmed the RBI’s commitment to price stability amidst persistent inflation concerns, highlighting the balance between growth and inflation management. The infusion of liquidity through the CRR cut and the proposed secured overnight rupee rate are expected to bolster the economy in the near term.
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