After assessing the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) at its meeting today (December 6, 2024) decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.50%.
Consequently, the standing deposit facility (SDF) rate remains unchanged at 6.25% and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%.
The MPC also decided to continue with the neutral monetary policy stance and to remain unambiguously focused on a durable alignment of inflation with the target, while supporting growth.
These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth.
To ease the potential liquidity stress, RBI has decided to reduce the cash reserve ratio (CRR) of all banks to 4.0% of net demand and time liabilities (NDTL) in two equal tranches of 25 bps each with effect from the fortnight beginning December 14, 2024 and December 28, 2024. This will restore the CRR to 4.0% of NDTL, which was prevailing before the commencement of the policy tightening cycle in April 2022. This reduction in the CRR would release primary liquidity of about Rs 1.16 lakh crore to the banking system.
RBI said it will continue to be nimble and proactive in its liquidity management operations to ensure that money market interest rates evolve in an orderly manner and the productive requirements of the economy are met.
The projected real GDP growth for 2024-25 is slashed to 6.6% from 7.2% earlier. The quarterly breakdown is as follows: Q3 at 6.8%; and Q4 at 7.2%. Real GDP growth for Q1:2025-26 is projected at 6.9%; and Q2 at 7.3%. The risks are evenly balanced.
The RBI has revised India's Consumer Price Inflation (CPI) forecast for financial year 2025 to 4.8% from 4.5% earlier. The quarterly breakdown is as follows: Q3 at 5.7%; and Q4 at 4.5%. CPI inflation for Q1:2025-26 is projected at 4.6%; and Q2 at 4.0%. The risks are evenly balanced.
During the policy meeting held on December 4 to 6, 2024, Saugata Bhattacharya, Dr. Rajiv Ranjan, Dr. Michael Debabrata Patra and Shaktikanta Das voted to keep the policy repo rate unchanged at 6.50%. Dr. Nagesh Kumar and Professor Ram Singh voted to reduce the policy repo rate by 25 basis points.
Dr. Nagesh Kumar, Saugata Bhattacharya, Professor Ram Singh, Dr. Rajiv Ranjan, Dr. Michael Debabrata Patra and Shaktikanta Das voted for continuing with the neutral stance of monetary policy and to remain unambiguously focused on a durable alignment of inflation with the target, while supporting growth.
The minutes of the MPC’s meeting will be published on December 20, 2024. The next meeting of the MPC is scheduled during February 5 to 7, 2025.
Following the RBI announcement, the Nifty Bank index was almost flat at 53,613.20 while the benchmark Nifty 50 index was down 0.09% to 24,685.40.
Axis Bank (up 1.50%), Bank of Baroda (up 1.25%), Canara Bank (up 1.04%), PNB (up 0.92%), SBI (up 0.21%) and ICICI Bank (up 0.14%) advanced.
AU Small Finance Bank (down 0.69%), Federal Bank (down 0.67%), Indusind Bank (down 0.52%), HDFC Bank (down 0.47%) and IDFC FIRST Bank (down 0.29%) declined.