RBI Monetary Policy December 2024: RBI’s 50 Basis-Point CRR Cut: A Strategic Liquidity Boost

RBI Monetary Policy December 2024: The Reserve Bank of India (RBI) reduced the Cash Reserve Ratio (CRR) by 50 basis points, a first in four years, during its latest Monetary Policy Committee (MPC) meeting. This decision, announced on December 6, 2024, seeks to address liquidity pressures in the banking sector amidst slowing GDP growth and rising inflation.

RBI Monetary Policy December 2024: What Is CRR and Why It Matters?

CRR represents the proportion of a bank’s deposits that must be held as reserves with the RBI. This tool helps regulate liquidity, influencing banks’ capacity to lend and invest. By reducing CRR, the RBI is allowing banks to deploy more funds into the economy, stimulating activity during challenging times.

RBI Monetary Policy December 2024: Highlights of the Policy

CRR Cut Implementation
The CRR reduction, phased over December 14 and 28, will inject ₹1.16 trillion into the banking system. This liquidity boost aims to counter tight conditions caused by tax outflows and elevated cash demand.

Repo Rate Stays at 6.5%
For the 11th straight time, the RBI kept the repo rate unchanged at 6.5%, striking a neutral stance to balance inflation and growth. Four of the six MPC members supported this decision.

Economic Projections
Inflation for FY25 is forecasted at 4.8%, up from 4.5%. Meanwhile, GDP growth projections have been scaled down from 7.2% to 6.6%, reflecting slower economic momentum.

RBI Monetary Policy December 2024: Impact on Banks and Borrowers

Banks
The liquidity injection will strengthen banks’ ability to meet loan demand, particularly in the retail and MSME segments. Economists estimate a 2-6 basis point improvement in banks’ net interest income.

Borrowers
With more liquidity at hand, banks may lower lending rates over time, benefiting borrowers seeking affordable credit options.

Depositors
Deposit rates might stay stable or witness minor adjustments as banks align their funding strategies with the enhanced liquidity.

RBI Monetary Policy December 2024: Growth vs. Inflation: A Tightrope Walk

RBI Governor Shaktikanta Das highlighted the balancing act between managing inflation and reviving growth. GDP growth of 5.4% in Q2 FY25—its weakest in seven quarters—has prompted the central bank to prioritize liquidity measures while keeping inflation under control.

Also Read: RBI Monetary Policy December 2024: RBI Holds Repo Rate Steady at 6.5%, Focuses on Inflation Control