The Reserve Bank of India (RBI) announced its fifth bi-monthly monetary policy for FY25 on December 6, 2024. The six-member Monetary Policy Committee (MPC), led by Governor Shaktikanta Das, decided by a 4-2 majority to keep the benchmark repo rate unchanged at 6.5% for the 11th consecutive meeting. The policy stance remains ‘Neutral,’ with a clear focus on ensuring inflation aligns durably with the target while supporting economic growth.
Additionally, the MPC cut the Cash Reserve Ratio (CRR) by 50 basis points to 4%, aiming to ease liquidity constraints and bolster credit growth. Inflation for FY25 has been revised to 4.8%, reflecting cautious optimism in balancing inflationary pressures with sustainable growth objectives.
Market Reaction and Insights
- CRR Cut Impact: The CRR reduction is a targeted measure to address ongoing liquidity challenges, allowing banks to inject more funds into the economy, supporting credit expansion and economic activity.
- Expert Commentary: Ashwani Dhanawat, Executive Director and CIO at Shriram General Insurance, noted that the policy adjustments highlight the RBI’s commitment to economic stability and adequate liquidity despite consumption and investment challenges.
- Market Movement: Following the policy announcement, Indian equity indices traded flat with a slight negative bias. At 2:30 PM, the Sensex was down by 53.39 points (0.07%) at 81,712.47, while the Nifty 50 dropped by 18.30 points (0.07%) to 24,690.10. The Bank Nifty index also slipped 17.30 points (0.03%) to 53,586.25. RBI MPC Live Updates: Indian Markets Face Moderation Amid FII SellingThe RBI’s decision to reduce the Cash Reserve Ratio (CRR), injecting over ₹1 trillion into the banking system, is a positive move for liquidity. However, this step alone may not suffice to significantly improve market sentiment without an accompanying interest rate cut. Indian markets are likely to remain moderate as Foreign Institutional Investors (FIIs) persist with their selling activities.Shlok Srivastav, Co-founder & COO of Appreciate, observed that global markets are showing mixed patterns. While U.S. indices have gained around 11% since September lows, Indian markets have declined by approximately 0.5% in the same period. In this context, he suggested that diversification across global markets could be a wise approach for investors, enabling balanced portfolios, better returns, and exposure to diverse growth opportunities alongside investments in India’s promising market.
RBI MPC Live Updates: Bond Markets Expected to Stay Rangebound
The bond markets reacted negatively to the RBI policy announcement, with the 10-year benchmark bond yield rising by 2-3 basis points shortly after. Prashant Pimple, Chief Investment Officer for Fixed Income at Baroda BNP Paribas Mutual Fund, noted that markets are likely to remain rangebound, fluctuating within 10-15 basis points of current levels.
Despite the CRR cut, liquidity is expected to stay neutral due to scheduled auction outflows and tax-related outflows, which will act as a buffer against significant shifts in the money market.
06 Dec 2024, 01:56:30 PM IST
RBI MPC Live Updates: ‘First repo rate cut likely in February’
The message from the RBI appears clear: no repo rate cuts will occur until there is solid confidence that inflation is on track to meet the target. With the economy at a turning point for both growth and inflation, February remains a potential date for a rate reduction. The key factor to watch is the impact of Trump’s policies when he takes office and their effect on inflation and the currency. The RBI’s move to reduce the CRR by 50 bps suggests it may have some flexibility to intervene in the currency markets. If currency markets worsen or the expected easing in domestic inflation does not materialize, the cut could be delayed, according to Indranil Pan, Chief Economist at YES Bank.
06 Dec 2024, 01:50:39 PM IST
RBI MPC Live Updates: ‘Fixed income markets will stay attractive with support from policy measures’
“The detailed discussions on growth and inflation, along with a reduction in growth projections by 60 bps and a sustained liquidity infusion, indicate that a rate cut is likely in the next policy. For now, the MPC rightly keeps its focus on controlling inflation and views the current growth slowdown as temporary. The policy direction seems aligned with the global trend of rate cuts. The confidence stems from expectations that inflation will soften in the months ahead,” said Mahendra Kumar Jajoo, CIO of Fixed Income at Mirae Asset Investment Managers (India). The bond markets saw a slight uptick in the 10-year government bond yields by 2-3 bps, which had already been easing to around 6.70%. Fixed income markets are expected to remain attractive with strong support from policy in the near term, he added.
06 Dec 2024, 01:39:53 PM IST
RBI MPC Live Updates: ‘Further liquidity measures expected if core liquidity tightens’
“The RBI is addressing the issue of declining core liquidity while considering the growth-inflation balance. The 50 bps CRR cut signals the direction of future monetary policy. In the short term, we may see other liquidity-enhancing measures like repo auctions, alongside screen-based OMOs, if core liquidity tightens. Based on the Q2FY26 CPI projections, absent additional inflation shocks, the February review could see a repo rate reduction,” said Rajeev Radhakrishnan, CIO – Fixed Income at SBI Mutual Fund.
06 Dec 2024, 01:30:55 PM IST
RBI MPC Live Updates: ‘Impact on yields expected when CRR funds are released’
“Given a benign inflation forecast of 4.5% for Q4, the chance of a repo rate cut in the next policy is high. The RBI has addressed liquidity concerns with the CRR cut, coinciding with advance tax flows and quarter-end needs, ensuring stable liquidity and bond yields for the month. The RBI has also provided reassurance on the forex front, with reserves able to buffer against any shocks,” said Madan Sabnavis, Chief Economist at Bank of Baroda. Market reactions in terms of bond yields and stock indices have been neutral to these announcements. An impact on yields is expected once the CRR funds are released, he added.
06 Dec 2024, 01:25:16 PM IST
RBI MPC Live Updates: ‘CRR cut will slightly support banks’ NIMs; prefer larger banks like HDFC, ICICI, SBI’
“We expect the rate cut cycle to begin in February 2025, balancing growth and inflation. The CRR cut of 50 bps in two phases to 4% will help improve liquidity conditions and support growth. This will slightly boost banks’ NIMs. With a potential rate cut in February 2025, banks with a higher share of floating rates may face margin pressure as the cost of funds will reduce with a delay. Data shows credit and deposit growth rates are converging, mainly due to a slowdown in credit growth. Stress on asset quality, particularly for banks with higher exposure to unsecured segments, is expected to continue in H2, keeping credit costs elevated,” said Naveen Kulkarni, Chief Investment Officer at Axis Securities PMS. He recommended larger banks such as HDFC Bank, ICICI Bank, SBI, and Bank of Baroda.
06 Dec 2024, 01:21:47 PM IST
RBI MPC Live Updates: ‘SORR is a needed benchmark as it reflects both regulatory rates and market sentiments’
“The CRR cut is a welcome step, releasing funds for banks to lend. The RBI’s approach to inflation and the repo rate will have long-term effects on reducing inflation and stabilizing the currency. The SORR benchmark is much needed as it incorporates both regulatory rates and market sentiment. This overall prudent approach aims at balancing long-term goals with short-term adjustments,” said Pralay Mondal, MD & CEO of CSB Bank.
06 Dec 2024, 01:15:33 PM IST
RBI MPC Live Updates: ‘CRR cut paves the way for rate cuts in February’
“The RBI has not let the temporary inflation spike deter its monetary easing plans. The CRR cut is beneficial for liquidity and sets the stage for a rate cut in February, once there is more clarity on inflation. We continue to anticipate 50-75 bps of rate cuts in this cycle and remain positive on duration,” said Anurag Mittal, Head of Fixed Income at UTI AMC.
06 Dec 2024, 01:10:25 PM IST
RBI MPC Live Updates: ‘Pre-sanctioned credit lines via UPI open new opportunities for SFBs’
“Credit through UPI presents a new business opportunity for SFBs, which previously had limited access to this space. Several SFBs, like AU Small Finance Bank, have successfully ventured into credit products like credit cards. With UPI credit lines, SFBs can offer low-cost credit solutions while benefiting from their extensive merchant networks. This also provides a chance to onboard new-to-bank customers,” said Mohit Bedi, Co-Founder & CBO of Kiwi.
06 Dec 2024, 01:02:45 PM IST
RBI MPC Live Updates: RBI Governor Das reaffirms strength of forex reserves
“We cannot predict how the forex market will behave, as the situation remains highly dynamic. However, our forex reserves are strong, and we have no concerns at this moment. We will take further action as needed. Building macroeconomic stability is essential, and dealing with spillovers is a crucial part of the RBI’s strategy,” said RBI Governor Shaktikanta Das.
06 Dec 2024, 12:53:48 PM IST
RBI MPC Live Updates: RBI Governor Das highlights adequacy of forex reserves
“Our forex reserves are robust and adequate, and we are confident in our ability to handle any spillovers,” affirmed RBI Governor Shaktikanta Das.
06 Dec 2024, 12:45:16 PM IST
RBI MPC Live Updates: Governor Das says inflation underlies growth slowdown
“Private firms are hesitant to invest due to moderate demand. The core reason for the slowdown in growth is inflation, and we must avoid knee-jerk reactions. Our assessment suggests that growth is starting to pick up,” said RBI Governor Shaktikanta Das.
06 Dec 2024, 12:42:49 PM IST
RBI MPC Live Updates: Governor Das clarifies no steps taken toward de-dollarisation
“There has been no discussion on a BRICS currency, nor has India taken any steps toward de-dollarisation. Our focus is to de-risk our trade,” said RBI Governor Shaktikanta Das.
06 Dec 2024, 12:29:42 PM IST
RBI MPC Live Updates: Governor Das says it’s time to normalize CRR levels
“What banks do with the CRR is their choice. Currently, there is a liquidity surplus, but we are heading into a phase of tighter liquidity. Therefore, we believe it is time to normalize CRR levels,” said RBI Governor Shaktikanta Das.
06 Dec 2024, 12:22:33 PM IST
RBI MPC Live Updates: Governor Das expects tighter liquidity conditions
“We expect currency in circulation to rise, and anticipate tight liquidity conditions in the coming months due to tax-related outflows,” said RBI Governor Shaktikanta Das.
06 Dec 2024, 12:16:22 PM IST
RBI MPC Live Updates: RBI’s effort to control inflation, says Governor Das
“Inflation made a strong attempt to rise sharply, but our efforts are focused on keeping it in check,” said RBI Governor Shaktikanta Das.
06 Dec 2024, 12:13:15 PM IST
RBI MPC Live Updates: Governor Das optimistic about growth in H2FY25
“Growth in the second half of FY25 looks better than the first half. The RBI will use various policy tools to restore the balance between inflation and growth,” said RBI Governor Shaktikanta Das.
06 Dec 2024, 12:10:19 PM IST
RBI MPC Live Updates: Governor Das stresses need to reduce inflation for sustainable growth
“Inflation must be reduced to ensure sustainable growth. The MPC is committed to restoring the balance between inflation and growth,” said RBI Governor Shaktikanta Das in a post-monetary policy press conference.
06 Dec 2024, 12:01:02 PM IST
RBI MPC Live Updates: Liquidity infusion could improve rate cut transmission, says Madhavi Arora
“Policy trade-offs have become more challenging, with emerging cracks in the domestic economy leading to stagflation. Given the challenges around rate cut timing and the FX cost, the CRR cut of 50 bps was the least costly measure. Reversing the CRR to pre-Covid levels means an infusion of ₹1.2 trillion, which could help with better and faster transmission of rate cuts when the RBI starts its rate cut cycle. Without policy support, liquidity deficits could exceed ₹3-3.5 trillion by end-March 2025,” said Madhavi Arora, Lead Economist at Emkay Global Financial Services.
06 Dec 2024, 11:50:43 AM IST
RBI MPC Live Updates: First rate cut expected in February 2025, says RBL Bank Economist
“The surplus liquidity conditions should facilitate quicker monetary transmission when the window for rate cuts opens. It’s a good time to lock in deposits, and we expect borrowing rates to soften in the first half of next year. If inflation moderates, we anticipate the first rate cut to take place in February 2025,” said Achala Jethmalani, Economist at RBL Bank.
- CRR Cut’s Impact: “The RBI’s decision to cut the CRR is seen as a significant move to boost liquidity in the system. It sets the stage for a possible rate reduction in February, once inflation becomes clearer. With this shift, the market expects a rate cut of around 50-75 bps in the upcoming cycle,” said Anurag Mittal, Head of Fixed Income at UTI AMC.
- SFBs Benefit from Pre-sanctioned Credit Lines: “The introduction of pre-sanctioned credit lines via UPI opens a new avenue for Small Finance Banks (SFBs), who are already making strides in offering low-cost credit solutions. With these credit lines, SFBs can further enhance their customer base, especially in underserved areas,” explained Mohit Bedi, Co-Founder & CBO of Kiwi.
- RBI Governor on Forex Reserves: “Our forex reserves remain robust, and we are fully prepared to manage any challenges arising from global uncertainties,” stated RBI Governor Shaktikanta Das. “There’s no concern about the situation at this moment, and the RBI will act as needed to ensure macroeconomic stability.”
- Growth Slowdown Due to Inflation: According to RBI Governor Shaktikanta Das, “The slowdown in growth is primarily due to inflation, which is restricting private sector investment. However, we are seeing some signs of growth recovery, and we must avoid knee-jerk reactions.”
- De-risking Trade Rather Than De-dollarisation: Governor Das emphasized, “India is focused on de-risking its trade, not pursuing any steps toward de-dollarisation. There has been no discussion about a BRICS currency, and our policy is to maintain stability in our economic system.”
- Normalization of CRR: “With liquidity surplus currently in the system, we believed it was the right time to normalize the CRR. This move will help manage the tightening liquidity expected in the coming months,” said RBI Governor Das.
- Currency in Circulation and Liquidity: “We anticipate a rise in currency circulation and expect tighter liquidity conditions in the coming months due to tax-related outflows,” stated RBI Governor Shaktikanta Das.
- Inflation Management Focus: “We remain committed to managing inflation carefully. The challenge is to keep inflation in check without derailing growth,” said Governor Das.
- RBI’s Action on Liquidity and Rate Cuts: Madhavi Arora, Lead Economist at Emkay Global Financial Services, stated, “The CRR cut, which is expected to release ₹1.16 lakh crore into the system, should assist in the smoother transmission of rate cuts. This liquidity boost may be crucial for easing rates as the RBI initiates a rate-cut cycle.”
- Future Rate Cuts: “We expect the first rate cut in February 2025, provided inflation shows signs of moderation. The current liquidity surplus should make rate cuts more effective,” said Achala Jethmalani, Economist at RBL Bank.
- Impact of CRR Cut on Short-Term Interest Rates: Suman Chowdhury, Executive Director at Acuité Ratings, noted, “With higher liquidity, short-term interest rates will likely soften, easing the pressure on bank deposit rates. However, inflation forecasts suggest the RBI will need to navigate carefully before initiating any rate cuts.”
- CRR Cut as Temporary Measure: “While the CRR cut is a welcome step, it serves as a temporary fix for easing money markets as liquidity tightens. Banks are likely to deploy the liquidity toward repaying non-deposit liabilities in the medium term,” explained Debopam Chaudhuri, Chief Economist at Piramal Enterprises.
- Real Estate Boost from CRR Cut: Anuj Puri, Chairman of ANAROCK Group, remarked, “The CRR reduction is a positive development for real estate as it enhances bank lending capacity. While a repo rate cut could further boost housing sales, the continuation of affordable home loan rates will sustain demand.”
- MPC Decision on Repo Rate: The RBI’s Monetary Policy Committee (MPC) decided by a 4-2 vote to keep the policy repo rate at 6.50%. Despite two members voting for a 25 bps reduction, the committee opted for a neutral stance, with a focus on balancing inflation control and growth.
- RBI’s New AI Initiative for Digital Fraud Prevention: In a bid to combat digital frauds, the RBI introduced MuleHunter.AI, an AI-powered model to identify mule bank accounts, marking an important step in safeguarding digital transactions.
- Framework for Responsible AI Use: The RBI announced plans to establish a committee to develop a “Framework for Responsible and Ethical Enablement of AI (FREE-AI)” to address the risks of algorithmic bias, data privacy, and other concerns in the financial sector.
- Credit Lines for SFBs via UPI: Small Finance Banks (SFBs) will now be able to offer pre-sanctioned credit lines via UPI, enhancing financial inclusion and providing easier access to credit for new-to-bank customers.
- New Benchmark for Interest Rates: The RBI proposed a new benchmark, the Secured Overnight Rupee Rate (SORR), to strengthen the interest rate derivatives market in India and improve the credibility of interest rate benchmarks.
- Enhancing the FX-Retail Platform: The RBI is linking the FX-Retail platform with Bharat Connect, enabling smoother transactions via mobile apps for greater transparency and efficiency in foreign exchange markets.
- Agricultural Loan Collateral Limit Increase: The RBI raised the limit for collateral-free agricultural loans from ₹1.6 lakh to ₹2 lakh per borrower, aiming to boost credit availability for farmers and strengthen the agricultural sector.
- Revised Inflation and GDP Estimates: The RBI has revised its inflation forecast for FY25 to 4.8%, and GDP growth estimates have been reduced to 6.6% for the same period. The downward revisions reflect the challenges of managing inflation while supporting growth.