Mumbai (Maharashtra) [India], December 6 : In its latest monetary policy announcement on Friday, Reserve Bank of India (RBI) Governor Shaktikanta Das announced that the cash reserve ratio (CRR) for all banks will be reduced to 4 per cent of net demand and time liabilities (NDTL) in two tranches of 25 basis points each, effective from December 14 and December 28.
By this, Rs 1.15 lac crore liquidity will be infused into the backing system. Governor Das outlined the inflation projections for FY24-25, pegging Consumer Price Index (CPI) inflation at 4.8 per cent. Quarter-wise, inflation is forecasted at 5.7 per cent for Q3 and 4.5 per cent for Q4. For FY25-26, CPI inflation is projected at 4.6 per cent in Q1 and 4 per cent in Q2.
"Despite some softening, lingering food price pressures will keep headline inflation elevated in the third quarter of FY24. However, a good Rabi season, supported by favorable soil moisture and reservoir levels, is expected to ease food inflation pressures. Seasonal winter corrections in vegetable prices and record Kharif production should also contribute to moderation," Das stated.
He cautioned, however, that domestic edible oil prices, influenced by import duty hikes and rising global rates, require close monitoring.
India's real GDP growth for the second quarter of FY24 slowed to 5.4 per cent, significantly lower than anticipated. The deceleration was primarily attributed to a sharp decline in industrial growth, which fell from 7.4 per cent in Q1 to 2.1 per cent in Q2.
This slowdown was linked to weaker performance in manufacturing, contractions in mining activity, and reduced electricity demand.
The governor highlighted that the weakness in manufacturing was limited to specific sectors such as petroleum products, iron and steel, and cement.
Encouragingly, the governor noted, "High-frequency indicators suggest the slowdown bottomed out in Q2, with recovery driven by festive demand and rural activity pickup."
Das emphasized the resilience of the global economy in 2024, despite challenges such as rising U.S. dollar strength, hardening bond yields, and volatile financial markets.
However, he warned of potential risks from rising protectionism, which could hinder global growth and inflate prices. The MPC also acknowledged downside risks to domestic growth, including high inflation, adverse weather events, geopolitical uncertainties, and financial market volatility.
"High inflation reduces disposable incomes, dampens private consumption, and negatively impacts real GDP growth," Das noted.
The MPC reiterated its focus on durable price stability as the foundation for high economic growth. While the recent surge in inflation above the 6 per cent tolerance band in October raised concerns, the committee expects easing food inflation and favorable agricultural output to stabilize prices in the coming quarters.
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