RBI MPC meeting: Market experts welcome CRR cut, say 'best is yet to come'

The RBI has also revised its financial year 2025 GDP forecast lower to 6.6 percent from 7.2 percent and inflation forecast was revised to 4.8 percent from 4.5 percent earlier.

The Reserve Bank of India (RBI) kept the repo rate unchanged at 6.5 percent during its December 6 policy review, on the back of continued inflationary pressures. This decision comes even as India’s GDP slowed to a seven-quarter low of 5.4 percent last quarter. To address liquidity concerns, the RBI announced a 50 basis point (bps) reduction in the Cash Reserve Ratio (CRR), lowering it to 4 percent in two tranches effective December 14 and December 28.

This combination of measures was welcomed by market participants, although at noon, both benchmark indices were trading flat.

“The RBI Governor’s reduction in CRR aligns with the market’s expectations for improved liquidity,” said Rajesh Palviya, Head of Technical Research at Axis Securities. “This move will boost consumption and help the economy get back on track. The market will take this as a  proactive step, boosting confidence that the central bank is closely monitoring the economy and will act when necessary.”

Market expert Deven Choksey concurred, adding that the CRR cut could be the beginning of a fall in interest rate cycles. He added, “The phased 50-bps reduction will infuse about Rs 1.06 lakh crore of liquidity into the system, supporting project funding and growth. This move will positively impact most banks, boosting their MTM profits on treasury bond portfolios. The best is yet to come.”

The move to cut CRR , according to Sandeep Bagla, CEO, Trust Mutual Fund, will reduce banks’ desperation to raise funds and inject much-needed liquidity. Bagla anticipates a rate cut in February, noting that “two out of six MPC members already voted for a reduction, signaling a high likelihood of easing”.

The RBI has also revised its financial year 2025 GDP forecast lower to 6.6 percent from 7.2 percent and inflation forecast was revised to 4.8 percent from 4.5 percent earlier.

Impact on market

MOFSL's Head of Research (Retail) Siddhartha Khemkha suggests that the policy announcement has largely been in line with market expectations. "After the GDP numbers came in lower, there was some hope that the RBI would provide liquidity support for the markets, which is where the CRR measure came into play. The RBI has delivered in line with expectations—no rate changes but additional measures, which is what the market anticipated. Had they not done this, it could have been perceived negatively," he suggests.

Palviya added that there is potential for upward momentum in banking and infrastructure sectors. “Bank Nifty is likely to scale new all-time highs. Private and PSU banks, alongside infrastructure and real estate, are set to benefit as liquidity improves, supporting credit growth and infra spending.”

According to Siddarth Bhamre, Head of Research at Asit C Mehta, the lack of a rate cut is unlikely to disrupt markets. "I think on the positive front, especially on liquidity front, we were anticipating that 25 basis may happen, but reducing it by 50%, that would reduce the desperation of banks to raise funds," he noted adding that the Indian economy remain one of the strongest among the peers.  "Overall, the policy is positive for banks but doesn’t justify overly optimistic expectations. While interest rate-sensitive stocks may see some mild positives, significant value gains  are unlikely," he added.

On medium to long-term impact Khemka adds, "Some impact is already visible. For example, there’s positivity for PSU banks and NBFCs. Over the past week, expectations of these measures have already been factored into the market, and we’ve seen some PSU banks and NBFCs performing well." These measures, he suggest will help banks and NBFCs lower their costs by improving liquidity.

Divam Sharma, Founder and Fund Manager, Green Portfolio believes that barring some of the uncertainties that could evolve in macros, the financial system is stable. "RBI decisions are proactive and responsive and our economy is in a comfortable zone. The markets should continue to benefit over the near term," he said.

Bhamre adds that the RBI governor is keeping all his arsenal intact and not wasting it based on one quarter GDP data or a couple of months inflation data. "Because the situation is so dynamic, external situation, holding your arsenal and firing at the right point of time is good."

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