New Delhi [India], December 6 : The Reserve Bank of India (RBI) kept its key interest rates unchanged on Friday but cut the cash reserve ratio by 50 basis points to bring enough liquidity in the banking system.
The Monetary Policy Committee decided to keep the reo rate unchanged at 6.5 per cent and Cut CRR by 50 basis points to 4 per cent to infuse liquidity in the banking system and lower interest rates.
Eminent economists, reacting to the RBI's says that the apex bank has opted for a dual approach to tackle the challenges of inflation and slowing economic growth.
Dharmakirti Joshi, Chief Economist at CRISIL, remarked, "The CRR was cut to prevent excessive draining of liquidity from the economy, which typically curbs economic growth."
On RBI revising GDP growth substantially from 7.2 per cent to 6.6 per cent for FY25, Joshi says "The sharper-than-expected gross domestic product (GDP) slowdown in the second quarter led the RBI to revise lower its projection by a significant 60 bps to 6.6 per cent."
The RBI decision comes amidst, the sluggishness in the second quarter growth, dipping to 5.4 per cent.
Mayank Joshipura, Vice Dean, Research and Ph.D. Programme, Professor (Finance), NMIMS said, The second quarter GDP growth of 5.4 per cent signals widespread slowdown and it needs to be addressed by bold moves.
"Today, RBI has tried to improve banking system liquidity by cutting CRR by 0.5%. However only the repo rate cut going forward will bring down the cost of borrowing and EMIs and boost consumption and arrest the economic slowdown." Says Joshipura.
In his remarks, The RBI Governor Shakatikanta Das emphasized central banks focus on inflation control than growth. But economists believe a rate cut is likely in the February policy.
Abhishek Pandya, Research Analyst, StoxBox said, "We expect the RBI to initiate a 25 bps rate cut in the February 2025 policy meeting, with further room for a downward revision to GDP."
Dr Niranjan Shastri, Associate Professor (Finance) at SBM - SVKM's NMIMS noted, "While the rate hike pause aims to support economic growth, the focus remains on controlling inflation. The reduction in CRR will inject liquidity, potentially boosting credit and economic activity."
The move was also lauded by industry leaders. Hemant Jain, President of PHDCCI, stated, "We appreciate the calibrated steps undertaken by RBI to cut CRR significantly from 4.5% to 4 per cent. It will not only enhance the liquidity in the economy but also boost business sentiments as it signifies the futuristic softening of interest rates in the country"
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