Policy Decisions at a Glance
The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC), chaired by Governor Shaktikanta Das, announced its latest policy decisions in the meeting held today. The committee unanimously decided to keep the repo rate unchanged at 6.5%, marking a continuation of the current policy stance to ensure macroeconomic stability. However, the headline takeaway from this meeting was a reduction in the Cash Reserve Ratio (CRR) from 4.5% to 4%, aimed at boosting liquidity in the banking system.
Why the CRR Cut Matters
The CRR cut is expected to release approximately ₹1.3 lakh crore into the financial system, providing banks with additional lending capacity. Governor Das emphasized that this measure is intended to support credit growth in the economy, especially in sectors experiencing liquidity strain. Analysts view this as a timely step to encourage borrowing amid global economic uncertainties.
GDP Growth Outlook Revised Downward
While the policy measures aim to invigorate the economy, the RBI has lowered its GDP growth forecast for FY25 to 6.6% from the earlier projection of 6.8%. This revision reflects concerns over a sluggish global economic recovery and persistent inflationary pressures. Key sectors such as manufacturing and exports have been facing headwinds due to weak demand in international markets.
Inflation Still a Concern
Inflation continues to remain a priority for the central bank. Though retail inflation moderated to 6.4% in the latest reading, it remains above the RBI’s comfort range of 4-6%. Das reiterated the bank’s commitment to maintaining price stability while supporting growth.
Market Reaction and Industry Sentiment
The markets responded positively to the CRR cut, with banking and financial stocks witnessing a rally. Industry leaders welcomed the liquidity boost but raised concerns over the downward GDP revision, urging policymakers to implement structural reforms to stimulate long-term growth.
Looking Ahead
The RBI’s decision to maintain a balanced approach signals caution amid a challenging global environment. The liquidity infusion through the CRR cut could help businesses access credit more easily, but the onus is on fiscal policies to complement these measures. The next few months will be critical in determining the effectiveness of this policy framework.
