RBI Monetary Policy: The Reserve Bank of India on Friday, December 6 as part of its policy decision decided to cut the cash reserve ratio by 50 basis points to 4%. This move is likely to ease liquidity conditions
The cash reserve ratio (CRR) is the percentage of deposits that banks are required to hold as cash. The reduction will be implemented in two instalments of 25 basis points each, starting on December 14 and December 28.
CRR cut of 50 bps to lead to an infusion of ₹1.16 lakh crore into the system, RBI Governor Shaktikanta Das said in his policy speech today.
“This adjustment will restore the CRR to 4.0% of NDTL, the level that existed before the policy tightening cycle began in April 2022. The CRR reduction aligns with the central bank’s neutral policy stance,” Das added.
“This will be positive for most banks and their MTM profits on treasury bonds portfolio. This is the beginning of the fall in the interest rates cycle,” said Deven Choksey, Managing Director of DRChoksey FinServ.
Following the announcement, the benchmark equity indices – Sensex and Nifty – rebounded, erasing initial losses. The Nifty 50 was trading marginally higher at 24,732.5 while the BSE Sensex was at 81,837.15, both up 0.1%.
Repo Rate Unchanged
The RBI monetary policy committee (MPC) today decided to keep the repo rate unchanged at 6.5% for the eleventh consecutive time. The MPC voted in a ratio of 4:2 in favour of maintaining the rate while it unanimously decided to keep the stance neutral.
RBI Governor Das highlighted persistently high inflation as a key factor behind this decision. Amid this backdrop, the RBI MPC also slashed its growth outlook while raising the inflation forecast for the current fiscal year.
Retail inflation climbed to 6.21% in October, surpassing the central bank’s tolerance band for the first time in over a year. Meanwhile, the country’s GDP growth slowed to 5.4% in the July-September quarter, marking its weakest pace in seven quarters.
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