RBI cuts CRR by 50 bps to 4%, repo rate unchanged, stance remains 'neutral'

RBI Governor Shaktikanta Das

The Reserve Bank of India’s Monetary Policy Committee (MPC) decided to keep the benchmark repo rate unchanged at 6.5 percent on December 6.

As a measure to improve liquidity in the banking system, RBI also decided to reduce the CRR to 4%, a cut of 50 bps, done in two tranches of 25 bps each. The CRR cut is expected to help the banking system with liquidity worth Rs 1.16 lakh crore, the Governor announced.

This is the 11th time in a row when the central bank has kept the repo rate unchanged at 6.50 percent.

The MPC also kept the stance unchanged to 'Neutral'. The decisions were taken with a majority of 4:2 by the six-member rate-setting panel.

As a result, the standing deposit facility (SDF) rate remains unchanged at 6.25 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent.

Growth

Real GDP growth for Q2FY25 was much lower, admitted RBI, and said that this decline was led by a deceleration in industrial growth. However, the weakness in manufacturing was not broad-based. "Going forward, the slowdown in economic activity has bottomed out and since recovered due to festive demand and rural growth," said the Governor.

"The industrial activity is expected to normalise and recover," RBI said, adding that the end of monsoon and capex spend will help cement, iron, steel sectors. The rural demand has been moving upwards while urban demand is showing some moderation, the Governor added.

The GDP growth rate for FY25 is now seen at 6.6% with Q3FY25 growth at 6.8% and Q4FY25 GDP seen at 7.2%, said the governor.

Inflation

Going forward, lingering food price pressure will keep inflation high in Q3FY25 as well, said RBI Governor. Given this, RBI said CPI inflation is seen at 4.8% for FY25. The Governor added that one 'needs to wait for data to confirm the decline in inflation'.

"The gains in the decline in inflation notwithstanding the recent rise needs to be preserved," he added.

Other Key Measures

-Banks advised to reduce the number of inoperative accounts and unclaimed deposits

-Fx retail platform to be linked to Bharat Connect platform of NPCI

-New programme SORR to help develop interest rate derivative market in India

-RBI proposes to introduced new benchmark introduction of secured overnight Rupee rate

-Collateral-free agri loan limit to be enhanced from Rs 1.6 lk to Rs 2 lk per borrower. This enhances credit availability for farmers

-Credit line on UPI was launches in Sept 2023. Now, SFBs are also permitted to extend pre-sanctioned credit lines through UPI

-A framework for deployment of AI to be developed

-MuleHunter.AI developed by RBI to help banks address mule a/c and reduce frauds

A poll by Moneycontrol of 17 economists, bankers, and fund managers showed that the RBI’s Monetary Policy Committee (MPC) will keep the key interest rates unchanged.

RBI Governor Shaktikanta Das ended his MPC address on December 6 by quoting Netaji Subhash Chandra Bose, who once said, "Never lose your faith in the destiny of India."