ECONOMY
RBI slashes CRR by 50 basis points to 4%, keeps Repo Rate unchanged at 6.5%
- IBJ Bureau
- Dec 07, 2024
The Reserve Bank of India (RBI) on Friday kept its key interest rate unchanged citing inflation risks. But the central bank cut the Cash Reserve Ratio (CRR) that banks are required to park with it, boosting money with lenders to support a slowing economy.
With India’s GDP seeing a sharper-than-anticipated dip in the July-September period to 5.4 per cent – its slowest pace in seven quarters – inflation on the uptick and the rupee under pressure, the RBI had few choices to make.
The RBI’s Monetary Policy Committee, which consists of three RBI members and an equal number of external members, kept the Repurchase or Repo Rate unchanged at 6.5 per cent for a record 11th meeting in a row.
Four of the six members of the panel voted for a status quo in rate, while retaining its policy stance at “neutral”. External members – Nagesh Kumar and Ram Singh – voted for a quarter-point reduction.
RBI Governor Shaktikanta Das said that the CRR – the proportion of deposits that banks must set aside with the central bank – has been cut by 50 basis points to 4 per cent, effective in two tranches on December 14 and December 28.
The cut will infuse Rs 1.16 lakh crore into the banking system and soften short-term interest rates and can reduce the pressure on bank deposit rates.
“At this juncture, prudence and practicality demands we remain careful,” Mr Das said. A status quo is “appropriate and essential”, he said, adding that if growth slowdown lingers beyond a point, “it may need policy support”.
The RBI lowered its growth forecast for the year ending March 2025 to 6.6 per cent from its earlier projection of 7.2 per cent. This even though Mr Das said that GDP slowdown had bottomed out in the July-September quarter and had seen a pick-up in subsequent months due to festival spending and strong agriculture output.
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