Banking stocks witnessed an upswing in today’s trading session after the Reserve Bank of India (RBI) Governor Shaktikanta Das delivered the Monetary Policy Statement on December 6, 2024. The RBI decided to keep the repo rate steady at 6.5% for the eleventh consecutive meeting, reaffirming its commitment to economic stability amidst persistent inflationary pressures.
Key Monetary Policy Highlights:
- Repo Rate: Maintained at 6.5%
- Standing Deposit Facility (SDF) Rate: Held at 6.25%
- Marginal Standing Facility (MSF) and Bank Rate: Retained at 6.75%
Banking Sector Gains
Banking stocks showed mixed performance following the announcement, with several major players in the Nifty Bank index posting gains. A potential adjustment in the Cash Reserve Ratio (CRR) hinted at by Governor Das boosted investor sentiment in the sector.
Top Performers on Nifty Bank:
- Canara Bank: +2.06%
- Bank of Baroda: +1.97%
- Axis Bank: +1.77%
- Punjab National Bank (PNB): +1.64%
- State Bank of India (SBI): +0.64%
Anticipated CRR Adjustment
The current CRR stands at 4.5%. Analysts suggest that the RBI might consider reducing it to address tight liquidity in the banking system.
- A 50 bps CRR cut could infuse Rs 1.10 lakh crore to Rs 1.2 lakh crore into the system.
- A 25 bps reduction would release Rs 55,000 crore to Rs 60,000 crore, enabling banks to lend more and stimulate economic activity.
Economic Context
Governor Das noted that the slowdown in economic activity bottomed out in Q2 FY25, hinting at potential recovery. However, challenges such as persistent inflation, liquidity concerns, and lower GDP growth remain key considerations. The banking sector is expected to benefit significantly from any liquidity-enhancing measures.
Outlook
The decision to keep the repo rate unchanged reflects the RBI’s cautious stance, balancing inflation management with economic growth support. The potential CRR adjustment could further boost banking operations, supporting credit growth and lending capabilities.
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