In a landmark move, RBI Governor Shaktikanta Das announced a 50 basis points (bps) cut in the Cash Reserve Ratio (CRR), bringing it down to 4% from 4.5%, during today’s Monetary Policy Statement. The decision is expected to inject approximately Rs 1.16 lakh crore of additional liquidity into the banking system, providing much-needed relief amid tight liquidity conditions and economic challenges.
Key Policy Decisions
- Repo Rate: Unchanged at 6.5%
- Standing Deposit Facility (SDF) Rate: Held at 6.25%
- Marginal Standing Facility (MSF) & Bank Rate: Maintained at 6.75%
- CRR: Reduced by 50 bps to 4%, releasing Rs 1.16 lakh crore into the system.
Governor Das Highlights Economic Optimism
Governor Shaktikanta Das emphasized that the economic slowdown appears to have bottomed out in Q2 FY25, projecting optimism for a rebound in the upcoming quarters. However, persistent inflationary pressures and tight liquidity prompted the need for bold monetary measures like the CRR reduction to support growth.
Impact of the CRR Cut
The Cash Reserve Ratio mandates banks to maintain a specific percentage of their deposits as reserves with the RBI. By reducing the CRR, the central bank enables banks to hold fewer reserves, freeing up funds for lending and investments.
Implications of the 50 bps CRR Cut:
- Liquidity Boost: Banks will have Rs 1.16 lakh crore additional funds to deploy for lending, improving credit availability.
- Economic Stimulus: Enhanced liquidity supports credit growth, fostering investment and consumption.
Governor Das also addressed currency dynamics, noting that the Indian rupee depreciated by 1.3% from April to November. However, the rupee’s depreciation and volatility were far less compared to its emerging market (EM) peers, reflecting the resilience of the Indian economy.
The RBI reiterated its consistent exchange rate policy, emphasizing that the rupee remains market-determined.
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