amina.finowings
On December 6, 2024, the RBI announced the 5th bi-monthly monetary policy for FY25, keeping the repo rate unchanged at 6.5% for the 11th consecutive time. The Monetary Policy Committee (MPC), led by RBI Governor Shaktikanta Das, maintained a “neutral” stance. The Cash Reserve Ratio (CRR) was reduced by 50 basis points to 4%. Real GDP growth for FY25 was revised down from 7.2% to 6.6%.
Why the Repo Rate Was Kept Unchanged
-
Inflation Control: To keep inflation within the target range of 4% ± 2%. Future inflation risks, including rising food and fuel prices, influenced the decision.
-
Global Conditions: Geopolitical tensions and US Federal Reserve rate changes contributed to global volatility.
-
Economic Growth: Slower growth necessitates stability in borrowing costs.
-
Liquidity and Credit: Stable rates ensure predictable credit flow and sufficient banking liquidity.
-
Evaluation of Past Moves: RBI aims to assess the impact of previous rate changes before making further adjustments.
Why CRR Was Cut
The CRR cut will release ₹1.16 lakh crore liquidity into the banking system, enhancing credit availability. This move is essential to offset liquidity constraints caused by advance tax payments, GST, and the RBI’s dollar sales. Banks can now lend more, promoting economic growth without disrupting inflation control.
Conclusion
RBI’s decision reflects a cautious approach to balance inflation control, growth, and global uncertainties. The CRR cut aims to boost liquidity, supporting economic expansion while maintaining long-term stability.
This post was created with our nice and easy submission form. Create your post!
