New Delhi, Dec 6 (Mayank Nigam) Industry has hailed the Monetary Policy announced by the Reserve Bank of India saying it delivered exactly what the economy and markets need in the present context especially the Governor’s emphasis on price stability. The Reserve Bank of India (RBI) in its policy decision announced on Friday kept the key rate (repo rate) unchanged at 6.5 per cent but cut the cash reserve ratio (CRR) by 50 basis points (bps) to 4 per cent. The CRR is the percentage of a bank’s total deposits that it is required to maintain in liquid cash with the RBI as a reserve.
Commenting on monetary policy, Harsha Vardhan Agarwal, President, FICCI said, “While the Reserve Bank of India’s stance on the repo rate was widely expected, we welcome the 50-bps cut in the CRR rate. This move is well-timed and practical and should help ease out the liquidity situation supporting credit and overall growth.” On inflation front, the prices are expected to moderate in the latter part of current fiscal year. The industry looks forward to a cut in repo rate in the next policy statement, FICCI said in a statement after the announcement of the policy. Food prices have been driving the current spurt in prices and a seasonal correction is on anvil. It is pertinent to ensure a seamless supply side framework through better planning, logistics and distribution management of food items leveraging careful monitoring of production data, the industry body said. According to Sakshi Gupta, Principal Economist of HDFC Bank, the RBI opted for a wait and watch mode in todays’ policy, keeping its stance and policy rate unchanged as expected.
The central bank successfully engineered a fine balance in its communication between the need to remain cautious on growth while achieving price stability. The growth forecast was revised down by 60-bps to 6.6% while inflation was revised up to 4.8% for 2024-25. “We expect GDP growth to average at 6.4% in FY25, with some pick-up in momentum in the second half of the year,” she added. The more substantive announcement in today’s policy came in terms of the support for liquidity conditions through a CRR cut of 50-bps, which is estimated to add Rs 1.1 lakh crore of liquidity to the system. Banking system liquidity has come under pressure in recent days on account of tax outflows, foreign outflows and higher currency leakage. We expect the RBI to continue providing more “durable” support for liquidity through various measures including longer-duration fine tuning operations, Open Market Operations, and sterilising its FX interventions.
A February rate cut remains on the table, especially if growth momentum fails to pick-up meaningfully over the coming weeks. Ashwani Dhanawat, Executive Director and Chief Investment Officer, Shriram General Insurance, said the RBI’s Monetary Policy Committee opted to maintain the status quo on key policy rates, keeping the repo rate at 6.50%, while implementing a 50-bps cut in the CRR to 4% is the need of the hour and augers well for the economy. The reduction in the CRR is a targeted response to address ongoing liquidity tightness, providing banks with additional funds to support credit growth and economic activity. With inflation projections for FY25 revised to 4.8%, the committee’s neutral stance reflects a cautious approach in balancing persistent inflationary pressures with the need to foster sustainable growth, he said. Vaidyanathan Srinivasan, Operating Partner – Essar Capital, said, “The Monetary Policy Committee’s widely anticipated decision to keep interest rates unchanged is a prudent and measured step.
This along with a neutral monetary stance sends a strong signal of economic stability, which is vital for core sectors of the country.” He further stated that this move supports steady financing conditions, enabling businesses to focus on executing large-scale infrastructure projects and advancing renewable energy investments. Dhanpat Nahata, Managing Partner – Essar Capital stated the RBI’s decision to maintain the repo rate at 6.5% for the 11th consecutive time and reduce the CRR from 4.5% to 4% is a timely and strategic move. Amidst heightened global uncertainties, rising energy costs, and fluctuating commodity markets, this monetary policy stance ensures financial stability and enhances domestic liquidity. The reduction in CRR might inject additional funds into the banking system, encouraging banks to lend more to corporates, particularly in critical sectors such as energy and infrastructure, he added.