RBI MPC Meeting 2024 Highlights: RBI cuts CRR to 4%, repo rate unchanged at 6.5%

The Reserve Bank of India (RBI) today proposed allowing small finance banks (SFBs) to offer pre-sanctioned credit lines through the unified payments interface (UPI) and will issue the necessary guidelines shortly.

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The MPC stays on hold; CRR cuts to support sentiment

The MPC kept rates unchanged, keeping the repo rate at 6.50% for the eleventh meeting

in a row. However, as we had anticipated (see India Watch: RBI MPC Preview: Three body

problem 02 December 2024), more than 1 member voted for a rate cut, with Dr. Nagesh

Kumar and Ram Singh voting for a 25bp rate cut, with the others remaining in favor of a

hold. In his statement, the Governor acquiesced the Q2FY25 growth slowdown miss by

RBI but also stated the importance of anchoring inflation expectations to achieve stable

and high growth on a medium-term basis. However, a middle ground was found with

liquidity easing, as the RBI decided to deliver a 50bp cash reserve ratio reduction, to be

delivered over two tranches in December 14 and December 28, to 4.00%, releasing

INR1.16trn of liquidity in the banking system.

“The Reserve Bank of India’s decision to maintain the repo rate at 6.5% for the eleventh consecutive meeting, coupled with a neutral policy stance, reflects a prudent approach to balancing inflation management with economic growth support. The 50-basis-point reduction in the Cash Reserve Ratio (CRR) is a strategically timed measure to ease liquidity constraints, injecting over ₹1 trillion into the banking system. This move enhances banks’ capacity to extend credit and invigorates economic activity across sectors.

With inflation projections for FY25 revised to 4.8%, the RBI’s cautious outlook underscores its commitment to maintaining durable price stability while fostering sustainable growth. Notably, the real GDP growth forecast for FY25 has been revised downward from 7.2% to 6.6%, reflecting recent economic challenges. Headline CPI inflation spiked to 6.2% in October from 5.5% in September and sub-4% levels earlier in the fiscal year, driven by a sharp rise in food inflation and a modest uptick in core inflation.

Encouragingly, food inflation is expected to ease in Q4 FY25 as seasonal vegetable price reductions and kharif harvest arrivals bring relief. Meanwhile, the robust performance of private consumption and the services sector continues to underline the Indian economy’s resilience. Temporary headwinds, such as monsoonal disruptions and election-related factors, are anticipated to wane, paving the way for a recovery in the coming quarters.

For investors, this period presents an opportune moment to recalibrate strategies. Sectors with strong earnings visibility, manageable debt levels, and sustainable competitive advantages are likely to drive the next growth cycle. Diversified portfolios focused on emerging growth themes can capitalize on India’s medium- to long-term growth potential, which is underpinned by domestic economic resilience and favorable global trends.

The RBI’s policy adjustments, emphasizing stability and liquidity, position the economy and markets for sustained growth while providing a foundation for strategic, long-term investment opportunities.”

“RBI’s move to keep the repo rate unchanged at 6.5% for the 11th straight time is a step in the right direction. The central bank may want to monitor more economic indicators before deciding. The FY25 inflation is projected is hiked to 4.8%, which is a bit higher compared to the one projected in the last meeting. Nevertheless, it is still within the RBI tolerance band and is expected to start easing from Q4 of current FY25. 

The GDP growth projection for FY25 has been slashed to 6.6% from the earlier 7.2% indicating the effects of high food inflation. Going ahead, high food inflation in the domestic market and geopolitical tensions in the Middle East and between Russia-Ukraine will continue to remain a huge concern which could further lead to a slowdown in trade activities of gems and jewelry. However, continuation of neutral stance by RBI to support growth is a much-needed step which indicates a low-rate regime in sight.”

Rajesh Mirjankar, Co-Founder, MD, and CEO of KiyaAi, regarding the RBI’s recent monetary policy discussion on the Framework for Responsible and Ethical Enablement of Artificial and AI solutions to identify mule bank accounts - MuleHunter.AITM

“The regulations introduced by RBI mark a significant step towards inclusive, secure, and ethical banking.

The inclusion of pre-sanctioned credit lines through UPI for Small Finance Banks can revolutionise access to credit for underserved communities, driving deeper financial inclusion. As SFB will tap new to credit customer bases, AI will play a significant role for credit risk assessment and reducing defaults.

The proposed Framework for Responsible AI (FREE-AI) is a defining moment for the financial sector..

Initiatives like MuleHunter.AITM demonstrate how AI can effectively address challenges like fraud detection and prevention, including use cases like mule accounts. By encouraging collaboration between regulators, banks, and fintechs, these steps lay the groundwork for a more secure, inclusive, and tech-driven financial ecosystem.”

The Reserve Bank of India’s decision to keep the policy repo rate unchanged, while maintaining a neutral stance, reflects the ongoing challenges posed by high inflation. Additionally, the reduction in the Cash Reserve Ratio (CRR) from 4.5% to 4% will inject liquidity into the banking system, providing banks with more funds to lend, which may support economic activity.

For India’s real estate market, these developments suggest a mixed outcome. On one hand, lower GDP growth may indicate weaker overall demand, but on the other, stability in interest rates coupled with improved liquidity could continue to drive demand in the mid- and luxury housing segments, which have been rising due to growing middle-class aspirations and increasing housing requirements. Furthermore, should the RBI decide to cut rates in the future, it could further spur residential real estate demand, making homeownership more affordable and attractive for buyers. Overall, while the environment remains cautious, we believe the real estate market in India may continue to show resilience, particularly in growing cities and areas with strong infrastructure development..

RBI, in line with market expectations, announced a 50 basis points cut in the Cash Reserve Ratio, injecting ₹1.2 trillion in liquidity into the banking system. This liquidity measure is aimed at addressing the ongoing consumption slowdown. While the RBI maintained the repo rate at its current level, the decision was not unanimous, with two members of the Monetary Policy Committee dissenting. RBI’s policy actions underscore a calibrated approach to balancing economic growth and inflation. While the CRR cut provides immediate liquidity support, the cautious stance on interest rate adjustments reflects persistent external and domestic risks.

Economic Growth Outlook

The CRR cut follows a disappointing Q2 FY25 GDP growth figure, which prompted the RBI to revise its FY25 GDP growth projection downward to 6.6%. This aligns closely with our estimates of 6.5–6.7%. However, the central bank remains optimistic about the economy’s recovery, projecting 7% GDP growth in H2 FY25, compared to 6% growth in H1. The RBI attributes the revival to strong festive season spending and a rebound in rural demand, signaling that the economic slowdown likely bottomed out in Q2.

Inflation Dynamics

On inflation, the RBI acknowledged persistent food inflation pressures in Q3 but expects a moderation in Q4, supported by higher agricultural output. The FY25 Consumer Price Index inflation forecast has been revised upward to 4.8% from the earlier 4.5%, reflecting these short-term pressures.

Interest Rate Outlook

Looking ahead, the central bank is expected to initiate a modest reduction in the repo rate, with the first cut likely in February 2025. This anticipated easing is underpinned by projections of inflation softening in Q4 FY25. However, the overall magnitude of rate cuts during the calendar year 2025 is expected to be limited, reflecting global uncertainties such as geopolitical risks, volatility in foreign exchange markets, and trade tensions, including the potential re-escalation of Trump-era tariffs. We predict a cumulative repo rate reduction of 50–75 bps for 2025.

This is great news for Small Finance Banks (SFBs)! Credit on UPI opens up a new business avenue for SFBs, which didn’t previously exist. Many SFBs, like AU Bank, have already found success entering the credit space through credit cards.

With credit lines on UPI, SFBs can now offer low-cost credit solutions, both in terms of operations and customer acquisition, leveraging their extensive merchant networks in focused locations. This also provides an excellent opportunity to onboard new-to-bank (NTB) customers. It’s a match made in heaven.

A policy of hard choices well delivered. Overlooking the recent data, given growth-inflation outlook, RBI-MPC has struck the right chords. Giving what markets expected - a pause on Policy Rates and durable liquidity infusion. Given the inflationary pressures, the policy rates held steady with Repo rate at 6.50%. This time 2 of 6 members voted for a Repo Rate cut. If inflation moderates, we will see the first rate cut come through in February 2025. In the meantime, the Reserve Bank has lowered the reserve ratio by 0.50% which would infuse permanent liquidity to the tune of INR 1.16 lakh crore into the system over the course of next two fortnights; favouring banks and keeping money market rates benign. At 4.00% the CRR is now at pre-Covid levels. The surplus liquidity conditions in the system augur well for faster monetary transmission as and when the window to cut opens-up. The time is ripe for deposits to be locked-in and expect softer borrowing rates in 1H of next year.

In its 52nd meeting, the RBI’s Monetary Policy Committee opted to maintain the status quo on key policy rates, keeping the repo rate at 6.50%, while implementing a 50-bps cut in the CRR to 4%. The reduction in the CRR is a targeted response to address ongoing liquidity tightness, providing banks with additional funds to support credit growth and economic activity. With inflation projections for FY25 revised to 4.8%, the committee’s neutral stance reflects a cautious approach in balancing persistent inflationary pressures with the need to foster sustainable growth. While challenges on the consumption and investment fronts remain, the policy adjustments underscore the RBI’s focus on maintaining economic stability while ensuring adequate liquidity in the system.

1) Abhishek Pandya, Research Analyst, StoxBox

* In its December monetary policy meeting, the RBI was cautious on the growth outlook, with expectations of inflation cooling off going ahead on the back of a drop in vegetable prices. Though the RBI has taken the first step of pumping in sustained liquidity into the system through the CRR cut, we believe that a repo rate cut would have been a more appropriate measure to tackle a drastic 60 bps reduction in FY25 GDP forecast. Our sense is that the central bank was wary to initiate the rate cut as it would have been counter-productive to its fight to arrest the sticky inflation and the central bank saw some early signs of revival in the economy during the first two months of Q3FY25. 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 forecast. 

2) BHAVIK THAKKAR, CEO Abans Investment Managers

* While RBI policy today on Repo rate status quo and CRR cut of 50 bps has been on expected lines, RBI has increased the ceiling for offering FCNR (b) deposits (where NRIs can hold foreign currency deposits in India) by around 150 bps. This suggest that RBI is thinking more strengthening of $ against ₹. In last few weeks, appreciation in $ has resulted into weakening of ₹ (and also other major currencies) wherein RBI intervenes by selling $ and buying ₹ to maintain demand for ₹. This results into lower forex reserves. Today’s step of increasing ceiling for FNCR deposits (means higher interest rates for foreign currency deposits) makes us think that RBI expects continuous actions particularly from USA which can strengthen the $.

3) Jigar Trivedi, Senior Analyst,Reliance Securities

* In line with the forecast, the Reserve bank of India left its benchmark interest rate unchanged, amid continued inflationary pressures even though economic growth slumped. The RBI’s monetary policy committee voted four-to-two to keep the repurchase rate at 6.5% on Friday. “MPC believes only with durable price stability can strong foundations be secured for high growth,” Governor Shaktikanta Das said in a live streamed address in Mumbai. The Reserve Bank of India’s rate-setting panel has lowered India’s FY25 GDP growth forecast to 6.6% from 7.2%. India’s inflation has remained well above the RBI’s 4% target aim, with price gains accelerating to a 14-month high of 6.21% in October. Das had previously said a rate cut at this stage would be “very risky” and he was in no hurry to join the wave of easing by global policymakers. The central bank has kept the rates unchanged for almost two years now, but calls for easing are growing louder after a sharper-than-anticipated dip in the July-September period economic growth to 5.4%. We are of the opinion that there will be a rate cut at the February policy meet.

4) Nishant Srivastava CEO Torus Wealth

* The RBI’s decision to hold the repo rate at 6.5% signals a firm stance on inflation control, even as GDP growth forecasts for FY24 are trimmed to 6.3%. I feel the 50 bps CRR cut is set to inject ₹1 lakh crore into the banking system, bolstering liquidity. While equity flows may remain cautious shorterm, the additional liquidity could drive optimism in key sectors as markets anticipate a potential rate cut in early 2024.

5) Mayank Joshipura, Vice Dean, Research & Ph.D. Programme, Professor (Finance), NMIMS

* The 2nd quarter GDP growth of 5.4% signals widespread slowdown and that 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. Maybe better core inflation numbers going forward would allow the central bank to take measures that can put the economy back to high growth trajectory.

6) Dr. Niranjan Shastri, Associate Professor (Finance) at SBM - SVKM’s NMIMS

* Indian economy is facing challenge of inflation on one hand and slow down signals on another hand. The RBI’s decision to maintain the repo rate at 6.5% is a cautious approach considering sings of growing food inflation. However, to infuse more liquidity and thereby giving a push to growth is done through announcement of reduction in CRR in two tranches. 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.

7) Dr. Bharath Supra, Associate Professor – Finance & Programme Chairperson, School of Business Management, NMIMS Navi Mumbai.

* The RBI’s decision to hold the repo rate same for the eleventh consecutive meeting shows a consistent posture among conflicting signals from its overseas counterparts, reflecting its confidence in its current monetary policy framework to control inflation and promote development. Crucially, the RBI kept its flexibility by adopting a neutral posture, which enables it to react dynamically to changing macroeconomic conditions without assuring any direction. Fascinatingly, reducing the CRR puts an expected ₹1.3–1.5 lakh crore into the banking system; Particularly as the economy moves into the peak consumption and investment cycle, this action seeks to improve liquidity to help credit expansion.

“With last inflation data above the target band and growth slowing, RBI chose a cautious approach and maintained status quo on policy interest rates. The concern is not just on domestic food inflation but also global inflationary risks in midst of geopolitical conflicts and trade war. RBI has upwardly revised the average inflation projection for FY25 to 4.8%, bringing it in line with our expectations. As expected, RBI has lowered the overall GDP growth for FY25 to 6.6%, marginally higher than our expectations of 6.5%. While RBI will be cautious on growth, they don’t seem to be overly concerned. The Central Bank has highlighted that the slowdown in growth has been limited to few sectors and overall growth is expected to pick up in the second half of the year. 

The volatility in the global markets and RBI intervention in the forex market has been posing a challenge and RBI CRR cut of 50 bps will provide comfort on the liquidity front. This will also prepare the ground for a rate cut going forward .

We expect RBI to go for a shallow rate of 50 bps in 2025. CPI inflation is likely to moderate below 5% in Q1 2025 and that will provide the window for RBI to start the rate cutting cycle. There is no denying that there are some concerns on growth front and as RBI gets comfort on food inflation front, they would initiate a shallow rate cut cycle’’.

“RBI has prudently taken into account the rising input cost to raise the limit for collateral free agri loans to Rs 2 lakh from Rs 1.6 lakh earlier. This will be a boon for small farmers and equip them to better adapt to the challenges of rising cost of farming activities. That said, collateral free loans come with their own set of risks. Lenders should build robust risk management strategies to cope with fresh developments. While onboarding borrowers, it is vital for lenders to vet any properties they own, and their income, which will help establish repayment ability of borrowers. They also should use the latest technology to enhance the real-time monitoring efforts to keep risks in check.

Besides, RBI is also setting up a committee to recommend Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI) in the financial sector. We look forward to their recommendations, compliance to which will ensure that AI is not misused in any way.”

“The Monetary Policy Committee’s decision to keep the Repo Rate steady while reducing the Cash Reserve Ratio (CRR) by 50 basis points to ease tight liquidity conditions was in accordance with our expectations. The moderation in growth and the persistence of headline inflation are concerning factors that may necessitate timely policy support. Addressing the challenge of stimulating growth is critical and should not be overlooked. Core inflation has consistently remained below the 4% target for nearly a year. Looking ahead, food inflation is expected to ease due to lower commodity prices, a slowdown in demand as seen in GDP numbers, comfortable reservoir levels, seasonal drops in vegetable prices, and higher Kharif harvest. We anticipate a 25 basis points rate reduction in the upcoming February policy.”

The RBI has erred on caution. They did a CRR cut, but no Repo cut (our base case in pre-policy expected one of the two, with dispersion risks). No rate cuts mean no shocks. However, RBI announced CRR cut to ease liquidity. They did not have much choice. With liquidity set to tighten by around 1.5 lac cr, RBI had to give durable liquidity. In fact, RBI’s FX swaps earlier this week had already forewarned us about this action.

RBI has changed their view on inflation targeting. Inflation management has now become “flexible”, from a target of “4%”. Thus, the RBI continues to move in the direction cast in the last policy when they mentioned that they have a “dual mandate” of growth and inflation. Also, when inflation was close to 4%, RBI decided to “look through it” as CPI would rise in Q3 (which it did) and it was “inflation projection” that mattered, not “current inflation”. When RBI said today that inflation will be 4.5% next quarter, they decided not to focus on “inflation projection” but at the “current inflation”.

We believe it’s because of rupee risk. An easy monetary policy can only lead to further pressure on the rupee, and the RBI must remain cautious. Gov Das couldn’t have spelled the rupee risks in the policy as that would have put more pressure. Despite what RBI says, the rupee risks remain dominant on RBI as evidenced by the increase in FCNR rates. All in all, before going into the policy the market was divided. Thus, post policy there will be critics and proponents. For us, we think it was a balanced policy - hedging all the risks.

Reserve Bank of India (RBI) has maintained status quo on interest rate but has announced measure to provide liquidity support through two cuts of 25 bps each in CRR to free up Rs 50,000 crore in the banking system ahead of the busy season. The central bank seems to be confident on improvement in the demand trend and industrial growth on the back of increase in government capex and a better rural demand. However, given the inflationary concerns, the goal post for next rate cut seem to have shifted to Feb 2025 now. We remain constructive on equity markets and prefer large caps over small caps and have positive view on IT, real estate, banks, consumer, Pharma and engineering/capital goods sector.

“The RBI has sounded a cautious optimistic note in its latest monetary policy committee meeting - while it kept the repo rate at status quo, it acknowledged the evolving economic landscape, which is characterized not only by growth but also inflationary pressures. The decision marks a policy that’s trying to balance a fine equilibrium between a commitment to the support of economic recovery and the prevention of price instability.

The Indian economy has so far been resilient, but the persistence of inflationary pressures largely due to food prices remain a cause for concern. The RBI’s decision to continue to closely monitor inflation dynamics reflects the continued importance attributed to price stability.

The central bank has focused on financial stability and taken proactive steps to address emerging risks. The focus on strengthening the banking sector, promoting digital innovation, and fostering a robust financial ecosystem reflects the RBI’s forward-looking approach.

In a word, this monetary policy decision showcase that it is prepared to respond to changing economic conditions. Through a flexible and data-driven approach, the RBI would attempt to balance the need to stimulate growth with that of safeguarding price stability.”

“MPC at its December policy, in line with expectations, kept Repo rate unchanged at 6.5% and cut CRR by 50 bps. A detailed deliberation on growth- inflation dynamics while revising growth projections down by 60 bps, alongside the durable liquidity infusion measure points to an impending rate cut in forthcoming policy. While for now, MPC, correctly kept it’s unmitigated focus on aligning inflation with long term goals and termed the current slowdown in growth as transitory, the direction seems clear on policy path, in line with ongoing global rate cut cycle. The confidence emanates from expectations that inflation will ease in coming months. Bond markets reacted with slight uptick in 10Y govt bond yields by 2-3 bps, fair after having eased to hang around recent lows of 6.70% in the run up to the policy. Fixed income markets are expected to remain attractive with a stronger tailwind on policy front in the near term.”

> “The decision to keep the policy repo rate unchanged at 6.50% provides certainty in the cost of borrowing for both financial institutions and end consumers. This stability is essential for planning lending rates and managing loan portfolios. The projected GDP growth of 6.6% for 2024-25 and improving economic activity in the medium term signals an environment of rising consumer and business confidence. This could translate into higher demand for loans, particularly for personal, SME, and consumption-led credit. The expectation of a decline in CPI inflation to 4.8% by Q4 provides optimism that disposable incomes will recover, improving borrowers’ ability to repay loans.

> Introduction of Mulehunter.ai marks a landmark step in India’s digital lending and fintech ecosystem. The cutting-edge initiative promises to better enable the industry to combat frauds and protect consumers by detecting and mitigating the risk related to fraudulent activities like mule accounts. It would therefore form a very strong mechanism to create trust and credibility - an important pillar of success in any digital financial platform. Furthermore, a comprehensive framework of the responsible and ethical enablement of AI is equally crucial. AI needs to be innovative yet transparent, fair, and accountable.”

Indranil Pan, Chief Economist at YES BANK, says “This monetary policy contains many important perspectives for the future. First, there is acknowledgement that growth is slowing while inflation risks need a continuous watch. The backdrop to the policy was a sharp slowdown of growth to 5.4% for Q2 while inflation remained on the higher side and above the tolerance band. Having said, the RBI points to the fact that growth has likely bottomed in Q2 and is expected to rise in the remaining part of the year. On the other hand, inflation estimates for the current year has been moved up by 30 bps, with a sharp jolt seen in the estimates for Q3 inflation that has now been raised to 5.7% from the earlier 4.8%. The RBI assesses that inflation too will moderate to target going forward, but still wants to remain watchful of the evolving trends. 

“Thus, the message appears clear, the RBI will not move the repo rate lower till there is absolutely confidence in inflation moderating to target. Given that we are at the inflection point for both growth and inflation, February remains live. The critical factor to watch out is the Trump policies after he comes into office and its impact on inflation and currency. Probably providing itself flexibility to intervene in the currency markets, the RBI has moved ahead with a 50-bps reduction in CRR. We now anticipate the first cut in February but can be delayed if currency markets were to turn adverse or the anticipated softening in domestic inflation does not materialise”.

Madan Sabnavis, Chief Economist, Bank of Baroda says, “The credit policy has largely been on expected lines. The GDP forecast has been lowered against the background of a low Q2 growth number announced by the NSO last week. Based on forecasts for the next two quarters, a number of around 7% has been projected. The inflation projection has been increased to 4.8% which is mainly due to food inflation being high. The RBI has also raised the flag that core inflation can increase as several manufactured and service industry products have witnessed increase in costs and hence prices. However, given a more benign forecast of 4.5% inflation for Q4, there is a good chance of a reduction in repo rate in the next policy.

The RBI has addressed concerned issues on liquidity by lowering the CRR which will coincide with the advance tax flows and quarter end requirements. This will ensure stable liquidity and bond yields for the month. The RBI has also sounded assuring on the forex side given the reserves which can buffer against any shocks. The market reaction in terms of bond yields and stock indices have been largely neutral to these announcements. We can expect an impact on yields once the CRR funds get released in the market.”

“It is encouraging to note RBI asserting its independence amidst pressures of a rate cut arising from fiscal policy makers. However, the timing may not be optimal. An early rate cut will go a long way in reviving Indian economic activity, job creation and private capex in FY26, accounting for any lags between rate cuts and their effect on real economy. The CRR cut only serves as a band-aid to ease money markets as liquidity tightens from December’24 to March’25. This announcement will potentially release Rs 90,000 crores in December and Rs 1.16 lakh crores by March’25. The effect is expected to fizzle out beyond that, with banks deploying this additional liquidity to repay some of their non-deposit liabilities. Banks’ liabilities to the rest of banking system doubled from Rs 2.5 lakh crores in 2019 to Rs 5 lakh crores by Oct 24.”

- Debopam Chaudhuri, Chief Economist of Piramal Enterprises

RBI keeps repo rate unchanged, CRR cut by 50bps to 4%

CRR cut in two equal tranches, starting 14th and 28th Dec, 24 fortnights

Despite shockingly weak 2QFY25 GDP growth, the RBI did the right thing by keeping repo rate unchanged. Equity market fell and yields rose initially, though the former recovered after CRR cut announcements.

Real GDP growth projections revised down to 6.6% in FY25 (from 7.2% earlier), with 6.8%/7.2%/6.9% in 3Q/4QFY25/1QFY26 (from 7.6%/7.4%/7.3% earlier).

Headline inflation projections are revised up to 4.8% in FY25 (from 4.5% earlier), with 5.7%/4.5%/4.6% in 3Q/4QFY25/1QFY26 (from 4.8%/4.2%/4.3% earlier).

Overall, we appreciate RBIs calmness despite recent GDP data and their focus on long-term objectives.Rate cuts could begin from Feb’25 or later, as we expect GDP growth to disappoint once again.

“This time the monetary policy committee was faced with a complex decision, needing to support economic growth while addressing inflation and currency stability concerns. Markets keenly looked for guidance on how MPC navigates these competing priorities.

MPC has rightly chosen to be patient and keep policy rates unchanged but has finally acknowledged the need for durable liquidity infusion and normalised CRR back to the 4pc level releasing 1.16 lac crs in the system in 2 tranches.

In the next few quarters, CPI is expected to moderate towards the MPCs target but Growth is likely to surprise on the downside. With this as a backdrop, we expect MPC to commence its shallow rate cutting cycle from the next policy and expect bonds to trade in a range of 6.60 (sa) to 6.80 (sa) in the 10 yr.”

“RBI kept Repo rate unchanged but reduced CRR which helps in banking funds to be higher, increases liquidity indirectly and positive for banking as well as financial sector. Rupee kept deteriorating amid global challenges hence rupee depreciation is concern but compared to peers rupee is better placed. Thus rupee witnessed minor support post RBI comments and traded positive at 84.67 with minor gains of 0.03rs. Geopolitical concern remains. Growth was set back due higher inflation but inflation lower and growth higher projection were signalled by Mr Shaktikanta Das thus rupee showed minor cheer.”

With a majority votes (4:2) and on the expected lines, the repo rate has been unchanged at 6.5% and so has the stance maintained at Neutral. It is indeed a prudent and well balanced decision to cut the CRR first and then target the repo rate; dealing with the domestic liquidity crunch along with the external weaknesses. The CRR has been cut by 50bps to 4.0% adding Rs1.16lkcr directly to the banking system (deficit due to rupee depreciation and capital outflows); the much needed timely liquidity addition. There have been indications of easing in the inflation expected from Q4 onwards as per the flashed estimates which makes the Feb’25 meeting the base case for a rate cut. Price stability is indeed essential for sustained growth as the RBI expects inflation to align with its targets. The governor indicated that the economic activity slowdown has bottomed out in Q2, as the GDP growth for FY25 has been revised to 6.6% (from the earlier 7.2%). With the bank deposits now keeping pace with loan growth, it builds confidence that the health of financial sectors is at the best in a long time. Although growth is recovering from Q2 onwards, stabilization of the dollar would be on the watch-list as a risk to the upcoming rate cut. The policy on the whole is balancing the fine line between growth revival and inflation control. There is a readiness indicated for rate cuts from Feb’25 onwards provided the inflationary pressures decreases with stabilization of external uncertainties. Overall, the Indian economy has navigated through periods of trials, jolts on the global economy front but has emerged stronger; striving towards becoming a Developed Economy.

RBI kept the repo rate unchanged and maintained its monetary stance as neutral. RBI revised its GDP growth to 6.6 from 7.2 percent and CPI inflation to 4.8 percent from 4.5 percent. RBI to increase Forex Reserve, has permitted banks to raise fresh FCNR(B) deposits at higher rates in the 1 to 3 year and 3 to 5 year segment. This facility is available till March 2025. Due to tight liquidity situation prevailing in the economy, RBI has cut CRR in two tranches from fortnight beginning December 14 and December 28 2024. This should release Rs 1.16 Lakh Crores in the banking system and keep system liquidity in neutral conditions in coming months.

RBI has priority inflation and financial stability over growth consideration due to the uncertain geo political situation prevailing in the world economy. RBI has guided CPI Inflation for 2025-26 , with first quarter at 4.6 and second quarter at 4 percent levels. The support to growth should come in the next monetary policy as CPI inflation comes down in the coming months and global uncertainty clears. RBI GDP growth forecast is still higher than market forecast of 6.3 to 6.5 percent. RBI is projecting 6.8 and 7.2 growth in third and fourth quarter, which is on the higher side.

Debt market has taken no rate cut or change in stance as negative and 10 year yields have moved up from 7.72 to 7.75 levels. The market is expect to stabilize in the next few days as traders positions get offloaded. Till that time, the ten year is expected to trade in the range of 6.72 to 6.78 levels. RBI may have to cut more than 50 basis points in the coming months as the rate cut cycle is getting delayed and GDP growth in trending towards 6 percent levels. Investors should add to their duration portfolio to take advantage of high accrual and expected price appreciation in the coming months.

“RBI retained its policy repo rate on hold at 6.5% for an 11th straight time. The CRR cut announced was in line with liquidity conditions and market expectations. This will ease deposits rates in coming days.

RBI continues to have optimistic growth target even though it has revised FY 25 forecast down to 6.6%. This assumes Q3 at 6.8 per cent and Q4 at 7.2 per cent, which are still steep targets.

Second, CPI inflation for 2024-25 is revised upwards at 4.8 per cent though Q2 FY 25 forecast is just at 4%

An increased trade-off between growth and inflation is now faced by the RBI. While growth is being moderated, headline inflation is yet to show significant signs of cooling due to food inflation. The comforting number is lower core CPI which also indicates that there is slack in demand in economy.

So, in the coming quarters, as growth slack becomes more apparent, we continue to expect that policy priorities will be shifted from controlling inflation to supporting growth.”

We expect GDP growth to average at 6.4% in FY25, with some pick-up in momentum in the second half of the year. 

The more substantive announcement in today’s policy came in terms of the support for liquidity conditions through a CRR cut of 50bps, which is estimated to add INR 1.1 lakh crore of liquidity to the system. Banking system liquidity has come under pressure in recent days on account of tax outflows, foreign outflows and higher currency leakage. We expect the RBI to continue providing more “durable” support for liquidity through various measures including longer-duration fine tuning operations, Open Market Operations, and sterilising its FX interventions.

A February rate cut remains on the table, especially if growth momentum fails to pick-up meaningfully over the coming weeks. That said, a rise in global uncertainty and pressure on the rupee or domestic inflation could nudge the RBI to delay any rate cuts to the April policy – preferring prudence and patience over pre-emptive action.

The RBI MPC continued to maintain a status quo on the repo rate for the 11th time at 6.5% (by a 4:2 majority), as retail inflation surged to 6.21% in October, surpassing the RBI’s target range for the first time in a year. The MPC also decided to continue with the neutral monetary policy stance and to remain unambiguously focused on a durable alignment of inflation with the target. The Governor flagged rising risks, including weather disruptions, financial volatility, and geopolitical tensions, as factors that could push inflation higher. GDP growth for FY25 was revised down from 7.2% to 6.6% while retail inflation expectations inched up to 4.8% from 4.5% earlier. The central bank emphasized the need to closely monitor evolving risks, particularly as high inflation could weigh on GDP growth. Due to the tightening of liquidity, RBI announced a CRR cut of 50 bps, the first since March 2020, to be cut in two tranches of 25 bps each. While liquidity remains tight, given the focus on inflation control, this measure may prolong the process of bringing inflation under control unless the fresh agriculture crop arrivals result in a sharp fall in prices or growth continues to remain sluggish. Equity markets got what they wanted and hence have taken the policy outcome in their stride. Near-term moves in the markets could remain dependent on foreign flows till the time the Indian macros and micros show sustained improvement.

“The RBI’s decision to retain the repo rate at 6.5% was widely expected and reflects a prudent, balanced approach to managing growth while keeping inflation within the tolerable range. The reduction of the Cash Reserve Ratio (CRR) by 50 basis points is an encouraging move, as it will inject significant liquidity into the banking system, enhance banks’ lending capacity, and improve credit accessibility for individuals. Markets had already anticipated today’s policy to be neutral, with a positive sentiment reflected yesterday.”

‘In its MPC meeting concluded today, RBI kept its policy rates on hold, in line with its steadfast focus on durably aligning CPI with the 4% target. Pertinent to note that it wasn’t unduly perturbed by sharp moderation in Q2 GDP growth, which it saw as transitory. It instead chose to wait for more confirmation of CPI cooling off, especially given two elevated prints since the last MPC meet. RBI however cut CRR by 50 bps to alleviate liquidity tightness caused by aggressive FX intervention in the recent weeks. Going forward, CPI is expected to moderate over the coming months and is projected to reach around 4% by Q2FY26, while GDP projections have been revised downwards by RBI. Given this backdrop, we continue to expect a shallow rate cut cycle ahead beginning in February.’

The RBI has erred on caution. They did a CRR cut, but no Repo cut (our base case in pre-policy expected one of the two, with dispersion risks). No rate cuts mean no shocks. However, RBI announced CRR cut to ease liquidity. They did not have much choice. With liquidity set to tighten by around 1.5 lac cr, RBI had to give durable liquidity. In fact, RBI’s FX swaps earlier this week had already forewarned us about this action.

RBI has changed their view on inflation targeting. Inflation management has now become “flexible”, from a target of “4%”. Thus, the RBI continues to move in the direction cast in the last policy when they mentioned that they have a “dual mandate” of growth and inflation. Also, when inflation was close to 4%, RBI decided to “look through it” as CPI would rise in Q3 (which it did) and it was “inflation projection” that mattered, not “current inflation”. When RBI said today that inflation will be 4.5% next quarter, they decided not to focus on “inflation projection” but at the “current inflation”.

We believe it’s because of rupee risk. An easy monetary policy can only lead to further pressure on the rupee, and the RBI must remain cautious. Gov Das couldn’t have spelled the rupee risks in the policy as that would have put more pressure. Despite what RBI says, the rupee risks remain dominant on RBI as evidenced by the increase in FCNR rates. All in all, before going into the policy the market was divided. Thus, post policy there will be critics and proponents. For us, we think it was a balanced policy - hedging all the risks.

The cut in GDP forecasts for FY25 by 60 bps was confusing given the expectations of material improvement in economic activity in the second half. We continue to hold our full-year projections for FY25 at 7%. If we go by RBI’s forecasts for improvement in economic momentum with higher CPI forecast for the full year along with a CRR cut intended to ease liquidity and thus lower the money market rates, the need for a Feb’25 cut is lower and expect RBI to enter the easing cycle from April’25

“The MPC decided to keep the benchmark repo rate unchanged at 6.5% for the 11th consecutive meeting, signaling a cautious stance on economic growth and inflation. In a bid to inject liquidity into the banking system, the MPC also slashed the Cash Reserve Ratio by 50 basis points to 4%, which will infuse ₹1.16 lakh crore into the system. Additionally, the RBI raised its CPI inflation target for FY25 to 4.8% from the earlier 4.5%, citing inflationary pressures, especially from food prices. Consequently, the RBI revised its GDP growth forecast for FY25 downward, reducing it from 7.2% to 6.6%, reflecting the challenges posed by global uncertainties and domestic factors. Governor Das also announced an increase in the limit for collateral-free agricultural loans to ₹2 lakh per borrower and proposed a new benchmark secured overnight rupee rate to enhance transparency and liquidity in the money markets. The measures aim to strike a balance between liquidity support, inflation control, and growth stimulation. The rupee could benefit from increased foreign inflows, while bond yields may remain elevated due to inflation concerns. Gold and other safe-haven assets might attract investor interest.”

RBI MPC Committee in its policy meeting, decided against cutting the repo rate which stands unchanged at 6.5% on the back of headline CPI inflation surging upwards towards 6.2%. Further, the MPC committee also cut the GDP growth projection to 6.6% for the current financial year, from an earlier forecast of 7.2% indicating a weakness in the overall economy. However, on the positive side, RBI decided to cut banks (CRR) ‘ cash reserve ratio by 50 basis points to 4% in two tranches of 25 basis points each, kicking in on Dec. 14 and Dec 28 to increase the lendable financial resources. Markets however appear to have factored in these developments and are likely to consolidate in the coming weeks.

The RBI Monetary Policy Committee kept the repo rates unchanged based on 4:2 voting. The committee also kept the Marginal Standing Facility (MSF) and Standing Deposit Facility (SDF) unchanged. The primary focus is to ensure price stability and hence the focus is to bring inflation down to the target. The RBI has opinioned that the slowdown has bottomed out in Q2 FY 25 and indicated a pickup in high-frequency indicators. The rural demand has shown early signs of recovery whereas the urban demand remains muted. The RBI has reduced the GDP growth projection from 7.2% to 6.6% in FY 25. The RBI has revised the projected inflation to 5.7% in Q3 and 4.6% in Q4 of FY 25. The entire year’s CPI projection is changed to 4.8% from 4.5%. Further to improve the liquidity, the RBI has cut the CRR by 50 bps to 4%.

The RBI has remained overall accommodative to boost growth and maintain price stability. The cut in CRR and bottoming out of the slowdown will augur well with the equity markets in the medium term. The cut in CRR was a welcomed move and will lead to improved credit growth due to increased liquidity in the system. The earnings are expected to pick up in Q4 FY 25 which will be supported by a pickup in government spending.

RBI in its Monetary Policy Committee (MPC) meeting decided to keep the repo rate steady at 6.5%. The decision seems to balance inflation levels while carefully navigating global uncertainties. Some were expecting a bold move, especially with Governor Shaktikanta Das nearing retirement, but the neutral stance feels like a cautious approach, leaving room for adjustments if inflation risks stay manageable.

Food inflation remains a concern, with October’s CPI rising to 6.2% largely due to high vegetable prices, particularly onions. That said, better Rabi crop yields and falling edible oil prices due to heavy monsoons should provide some relief in Q4 FY25. On the GDP front, the growth projection for FY25 is now at 6.6%, after Q2 growth came in slower than expected at 5.4%. Sectors like agriculture and services are likely to play a key role in driving the recovery. The banking sector saw the Cash Reserve Ratio (CRR) lowered to 4%, releasing ₹1.16 lakh crore to boost liquidity. The RBI also emphasized technological advances, including algorithmic trading and regulatory steps like ‘Connect to Regulate.’

Meanwhile, the auto industry continues to show resilience, supporting manufacturing growth. Markets welcomed the stable rates, which often help reduce borrowing costs. If inflation stabilizes further, we could see the markets gaining momentum, adding to the optimism surrounding India’s economic outlook.

“While being cognisant of the incoming growth inflation mix, prudence and practicality required the RBI to address the issue of declining core liquidity. The CRR cut by 50 Bps provides adequate signalling with respect to the direction of monetary policy going forward. In the near term we could anticipate other fine tuning liquidity measures such as repo auctions apart from screen-based OMO in case core liquidity tightens further. Given the Q2FY26 CPI projections, in the absence of any incremental inflation shocks, the Feb review could be live for a repo rate reduction”

The Reserve Bank of India’s decision to keep the policy repo rate unchanged, while maintaining a neutral stance, reflects the ongoing challenges posed by high inflation. Additionally, the reduction in the Cash Reserve Ratio (CRR) from 4.5% to 4% will inject liquidity into the banking system, providing banks with more funds to lend, which may support economic activity.

For India’s real estate market, these developments suggest a mixed outcome. On one hand, lower GDP growth may indicate weaker overall demand, but on the other, stability in interest rates coupled with improved liquidity could continue to drive demand in the mid- and luxury housing segments, which have been rising due to growing middle-class aspirations and increasing housing requirements. Furthermore, should the RBI decide to cut rates in the future, it could further spur residential real estate demand, making homeownership more affordable and attractive for buyers. Overall, while the environment remains cautious, we believe the real estate market in India may continue to show resilience, particularly in growing cities and areas with strong infrastructure development..

RBI Governor Maintains a Fine Balance Between Inflation & Growth 

“RBI Governor held on the neutral stance and maintained the repo rates at 6.5% to tackle inflationary concerns. The inflation projection for FY24-25 at 4.8% is above RBI’s comfort level of 4%. There is also an upside risk to inflation as the global economies are leaning towards protectionism after President Trump being re-elected to the Oval office.

Despite the neutral stance in Repo rate the RBI has acknowledged growth concerns with a CRR cut of 50 basis points from 4.5% to 4%. The GDP numbers for quarter ending Sep-24 was way below expectations at 5.4%. However, the governor believes that growth has bottomed out and we are headed higher from here with projections of 6.8% for Q3 and 7.2% for Q4 in FY24-25. The GDP growth forecast for FY24-25 is reduced from 7.2% to 6.6%.

We believe the RBI has maintained a fine balance between inflation and growth. India 10-year bond yields has also recovered after falling sharply to 6.668% from 6.86% in the last 10 days. If the RBI projections stand true, then we can expect rate cuts in the first half of next year. With the infusion of more than Rs 1 lakh crore in liquidity through CRR cut, it seems that deposit rates have peaked for now and lending rates might fall once the rate cuts start next year.”

Mulehunter platform will use data from all banks. The number of frauds and amount is increasing fast enough for us to be concerned. All banks and entities are free to use their own platforms to detect fraud. Mulehunter is an infra that can be used by even small banks and NBFCs.

Liquidity is in surplus today, will be next few days. We are going into a phase where liquidity is going to be tight up to February. With liquidity expected to be tight later, we thought it is time to normalise liquidity through CRR cut.

Not appropriate to make judgment on trend growth rate based on one quarter - Patra

Sep inflation numbers were higher than what we expected. Dynamics between growth and inflation have become unsettled. Our assessment shows growth is picking up. We want inflation to be brought down closer to the target

There has been significant amount of capital outflows in October, November. CRR increase was done in April 2022. It was a temporary measure. 

The Reserve bank of India is rolling out a AI / ML based model called MuleHunter.AI for detection of mule bank accounts.

“A pilot with two large public sector banks has yielded encouraging results. Banks are encouraged to collaborate with Reserve Bank Innovation Hub (RBIH) to further develop the MuleHunter.AI initiative to deal with the issue of mule bank accounts being used for committing financial frauds.” RBI said in a statement.

Read full report here

The Reserve Bank of India (RBI) has cut real GDP growth projection for FY25 to 6.6 per cent from its earlier projection of 7.2 per cent.

The central bank upped the CPI inflation projection for FY25 to 4.8 per cent from its earlier projection of 4.5 per cent.

GDP

In his bi-monthly monetary policy statement, Governor Shaktikanta Das observed that on the domestic front, real gross domestic product (GDP) registered a lower than expected growth of 5.4 per cent in Q2:2024-25 as private consumption and investment decelerated even while government spending recovered from a contraction in the previous quarter.

Read full report here

The Reserve Bank of India (RBI) has decided to reduce the cash reserve ratio (CRR) of all banks by 50 basis points in two equal tranches of 25 bps each to 4.0 per cent of their deposits. This reduction will release primary liquidity of about ₹ 1.16 lakh crore to the banking system.

This is aimed at alleviating the expected liquidity tightness towards mid-December, when GST and advance tax outflows will happen.

Read full report here

The status quo on rates along with the regulator maintaining its ‘Neutral’ stance was anticipated. With the recent GDP print undershooting the RBI’s expectations sharply, a downward revision to the GDP growth forecast was imminent. Similarly, with the recent inflation numbers significantly higher than that of the RBI’s tolerance limit, the inflation forecasts have been revised upwards for FY25 with it tapering to the RBI’s tolerance limit by Q2FY26. We expect the rate cut cycle to begin from Feb’25 onwards, while balancing between growth and inflation.

The CRR cut of 50bps in 2 tranches to 4% would help improve the liquidity conditions while supporting growth. We believe this would lend slight support to NIMs for banks. With a rate cut possible in Feb’25, banks with higher share of floating rates would face pressures on margins, as CoF would revise downwards with a lag. The latest data shows convergence of credit and deposit growth rates, mainly owing to slowdown in credit growth. Asset quality challenges especially amongst banks with the higher exposure to the unsecured segments was visible in the previous quarters and we expect stress to persist in H2, thereby keeping credit costs higher in H2. Currently, we continue to prefer the larger banks with our top picks being HDFC Bank, ICICI Bank, SBI and Bank of Baroda.

RBI MPC: Optimising least costly policy measure

■ Policy tradeoffs have become even more perplexing with the emerging cracks in the domestic story with the economy stuck in a stagflationary state.

And given the challenges around timing and window of conventional rate cuts, and FX cost of rate cuts (liquidity implication/sterilization cost, and imported inflation amidst fluid global dynamics), a CRR cut of 50bp was the least costly measure for them.

CRR reversal to pre-Covid 4% level implies an infusion of Rs1.2tn at a time when core liquidity may steadily move to a deficit ahead with unsterilized FX intervention and CIC leakages.

■ More importantly, this liquidity infusion could lead to better and immediate transmission of cuts as and when the RBI commences the (shallow) cut cycle amid the limited window. Had there been no policy support, the system liquidity deficit would likely have crossed Rs3-3.5tn by end-Mar’25 as per our estimates.

■ With long-term VRRs turning ineffective, this again was their best bet to infuse long term liquidity, apart from the FX swaps they are conducting (which is skewing the Fwd premia curve, nonethless).

■ Going ahead, while rate cuts would still be a tricky call, we also keep a watch on unconventional measures, specifically, easing regulatory lending norms gradually ahead in order to re-spur waning credit offtake.

■ The move to incentivize the FCNR borrowings (by raising interest rate ceiling) reflects the fact RBI would be weighing the cost of heavy FX intervention in the past two months (USD35-40bn spot+fwd; USD60bn NDF) amidst FPI outflows and limited conviction on steady inflows ahead.

This is clearly a tacit attempt to tap other sources of foreign capital flows, which could give RBI some breathing room and lower its need for FX intervention.

RBI gives preference to INR stability and Inflation

“The RBI has clearly prioritized currency stability amidst a global environment of rate cuts by major central banks. While signs of an economic slowdown are visible, the Governor has resisted pre-empting a rate cut, focusing instead on controlling inflation, which has breached the upper tolerance band driven by buoyant food prices. However, as global monetary easing continues, the steps taken by the RBI are likely to align with broader international central bank actions over time to maintain stance in line with global monetary developments.”

Read the full report here.

“RBI policy remained steady with notable changes in inflation forecast being higher than before and growth expectations marked lower.

A very balanced policy once again and commendable in light of global and domestic economic complexities.

Fixed income investing prefers a stable, almost ‘boring’ environment and that is exactly what has been delivered. Investors to continue using fixed income for effective portfolio construction. A barbell strategy with buying short end corporate bonds with long end g-Sec and bank infra bonds is suggested for benefiting from carry as well as potential capital gains”.

“The RBI’s decision to maintain the repo rate at 6.5% keeps borrowing costs stable. However, the 50 basis points CRR cut to 4% is a game-changer, injecting ₹1.16 lakh crore of liquidity into the banking system. This move is a boon for debt mutual funds, especially short-duration and liquid funds, as it stabilizes yields and bolsters credit conditions.For the equity markets, increased liquidity is a positive signal for banking stocks. With enhanced lending capacity due to the reduced CRR, banks are positioned to improve profitability, potentially driving bullish sentiment across the financial sector, including NBFCs. Smart investors should capitalize on this scenario by focusing on quality debt funds and closely monitoring the performance of the banking sector for emerging opportunities.”

“As expected the MPC kept the benchmark rates and policy stance unchanged. The step is the right thing at this point, while the street was expecting a rate cut given the slowdown in credit demand and economic growth rate. The RBI may want to see the economic situation for another quarter, before reacting in February.

The CRR cut is a big positive, it will help infuse over Rs 1.6 lakh crore into the system. Not only will it ease liquidity, but also reduce deposit and lending rates, albeit with a lag effect. Largely, we expect the rate easing cycle to start in H1CY25. Lower rates, ample system liquidity, and a strong pipeline of new projects in 2025 will be a big positive for the sector. The RBI has set the path for growth, now the industry will wait for the FM to deliver in the Union Budget in February 2025.”

Today’s RBI MPC statement was largely on our expected lines. The MPC’s 4:2 decision in favor of keeping the Repo rate unchanged highlights the fact that inflation-fighting remains RBI’s top priority. While RBI is expecting inflation to go below its 4.0% tolerance band only in 2QFY26, the GDP growth is expected to improve sequentially this and the next quarter. In my sense, we are heading to a situation where RBI would have to take a more focused balancing act between inflation & GDP growth in the upcoming MPC meetings. The Governor also pointed out that the high frequency indicators are pointing to resumption of GDP growth post 2QFY25 downward tick. 

In respite to the Banking industry, RBI also decided to cut CRR (Cash reserve ratio) by 25bps in two tranches that will be completed by Dec’24 end. The CRR cut is expected to release ~Rs. 1.16 lakh crore liquidity into the Banking system. This will help banks to lower the cost of borrowing and should arrest the falling credit growth.

Leaning on prudence and practicality, the MPC kept policy rate unchanged at 6.5% amid higher food inflation but cut CRR to 4% to ease banking system liquidity deficit in December. This probably means 1st rate cut will potentially be in February 2025, in our view.

“ The Reserve Bank of India (RBI) has maintained the repo rate at 6.5%, marking the 11th consecutive meeting without any adjustment to this critical policy rate. This decision reflects a careful balancing act between managing inflation and fostering economic growth in the context of challenging circumstances and an unpredictable global economic environment. The RBI reaffirms its cautious approach while remaining open to future adjustments based on the evolving economic indicators.”

“ While RBI did not cut the interest rate but gave relief in terms of CRR by cutting it by 50 bps. But monetary policy revised GDP from 7.2 per cent to 6.6 per cent keeping in mind lower growth in the first half of the FY2025. At the same time, Inflation is revised upwards from 4.5 to 4.8 per cent clearly suggesting that India is now facing two problems of higher inflation and slowing economy. The need of the hour is to revive consumption without stoking inflation. That’s where the finance ministry and RBI has to act in unison. Now rate cuts can happen only after the budget.”

“As anticipated, the RBI has maintained its pause on interest rates. The central bank is currently grappling depreciating INR, softening bond yields, persistent inflation, and a slowdown in growth. Although the growth deceleration is not yet alarming, it provides the RBI with enough leeway to keep interest rates unchanged, focusing on controlling inflation and stabilizing the currency.

However, the continued shift towards a neutral stance suggests that the central bank’s focus is gradually moving from inflation control to supporting growth. At this point, a rate cut would be more beneficial for consumers, including home buyers, as borrowing costs remain high despite the unchanged repo rate. The growth in home loans has slowed, and consumption among lower-income groups has significantly decreased, as witnessed in sharp moderation in sales of affordable housing.”

“RBI Policy: Prudence, Practicality and Timing suggests a wait and watch for policy rate

As widely expected, RBI has held its policy rate at 6.5%, while announcing a CRR cut of 50 bp in two tranches of 25 bp each over the next two fortnight, Doing this RBI has provided adequate liquidity and eased the short term borrowing, while keeping longer term well anchored. Alongside the growth outlook of 7.2% for FY25 has been taken down to 6.6%, with the recent slowdown in growth. Inflation outlook has however been revised upwards to 4.8% for FY25 from 4.5% with 4% reaching in Q2 of FY26.

The inflation-growth outlook equation with upward revision in inflation and downward growth revision with a positive tone for prospects. along with RBI’s cautious tone of “prudence, patience, practicality” suggests that RBI will not act on its policy rate soon. External factors take precedence and RBI will not relent soon on rates until there is some clarity on the extent of storm in the external world. RBI revising the interest rate ceiling by 200 bp upwards on FCNR(B) deposits suggests that RBI is worried about the vulnerability on the external front (on USDINR). Therefore policy rates on hold, don’t expect RBI to relent on rates before April ’25, if there is visibility on Q2 inflation trending towards 2% and some clarity on external side emerges, Recall CRR hike of 50 bp done in April 2022 is now reversed. But the policy hikes done from May-22 will take much longer to reverse and not fully. Don’t expect more than 50 bp for 2025. Be practical and patient, the external sector needs more attention!”

“The RBI has walked a delicate balance between Inflation and Growth by keeping repo rates unchanged and cutting CRR rates. Estimate of Growth is revised downwards while inflation is revised upwards to reflect the 2 Q GDP no.”

Increased inflation, subdued consumption, and evolving macro situation is resulting in a tricky situation for the monetary policy decision. The neutral stance is in line with our expectations. We do not believe that there would be more than 50 bps cut in 2025.

Reduction in CRR is a positive and should impact the banks positively and ensure liquidity in the system. Barring some of the uncertainties that could evolve in macros, we believe that the financial system is stable, RBI decisions are proactive and responsive and our economy is in a comfortable zone. The markets should continue to benefit over the near term. FPI inflows have been challenging and steps to support growth in FPI flows, specially from the NRI’s will have a positive impact on the markets. We believe that as the trasition happens in the US, the FPI’s should increase flows to Indian markets.

The RBI’s decision to keep the repo rate unchanged at 6.5% for the eleventh straight meeting reflects a prudent and calculated approach in the current economic environment. As inflationary pressures persist, particularly in food prices, the central bank’s focus on price stability aligns with its commitment to maintaining economic resilience. The upward revision of the inflation forecast to 4.8% for FY25 indicates the RBI’s cautious optimism, acknowledging supply-side challenges while aiming to anchor expectations.

The projected GDP growth of 6.6% for FY25 signals underlying strength in the economy, supported by a recovery in high-frequency indicators and sustained demand across key sectors. The CRR reduction, releasing ₹1.16 lakh crore into the banking system, is a welcome move to boost liquidity and support credit growth, especially for sectors such as infrastructure and housing.

From an investment perspective, the RBI’s neutral stance provides much-needed stability. For fund managers, this is an opportune moment to focus on sectors poised to benefit from sustained domestic demand and India’s long-term growth trajectory. While global headwinds remain a concern, India’s strong macroeconomic fundamentals and policy continuity offer a robust foundation for investors to navigate the current landscape with confidence.

The Reserve Bank of India’s decision to maintain the repo rate at 6.5% for the 11th consecutive time underscores its steadfast commitment to balancing inflation and growth amid global uncertainties. The lowered FY25 GDP growth forecast to 6.6% reflects the challenges posed by decelerating manufacturing activity and a prolonged recovery in industrial sectors. This cautious stance is further justified by inflation projections, which show a gradual descent toward target levels but remain vulnerable to geopolitical shocks and commodity price fluctuations.

Market reactions, as expected, were swift. The 10-year benchmark bond yield’s 5-basis-point rise indicates heightened caution among fixed-income investors, reflecting concerns over tight liquidity and persistent inflationary pressures. The equity markets are likely to experience increased sectoral bifurcation. Rate-sensitive sectors such as banking and real estate might face short-term headwinds due to the prolonged rate pause, while sectors like IT and large-cap defensive stocks could attract investor interest amidst global economic uncertainty.

From a broader perspective, the RBI’s neutral stance signals a wait-and-watch approach, leaving room for liquidity adjustments through measures like CRR cuts or Open Market Operations if warranted by macroeconomic conditions. This policy continuity assures market participants of stability in a globally volatile environment, even as it underscores the need for structural reforms to rejuvenate domestic growth drivers.

Sectorally, the financial sector will closely monitor any liquidity measures to assess their impact on credit growth and deposit mobilization. Manufacturing, which has shown signs of bottoming out, may look for fiscal interventions to complement monetary policy efforts. Export-oriented industries could remain under pressure as global protectionism continues to disrupt trade dynamics.

Overall, the RBI’s measured approach provides a signal of confidence to markets while highlighting the need for collaborative fiscal and monetary efforts to navigate economic headwinds effectively.

Nifty index is in buy on dips mode as overall trend remains Bullish and Nifty traded higher for the past 5 trading sessions. Nifty has crossed the resistance of 24500 levels. Throughout the week, sustained buying was seen from lower levels. Index is taking strong Support near 24350 zones which is also close to it 50 DEMA. On weekly chart Nifty has formed a Bullish candle which indicates some more strength towards the next resistance of 24800 then 25000 levels. Index is also trading above all short-term moving averages and the current price action suggests that further Up-move may occur.

The increase in the long-short ratio from 38.14% along with FIIs buying over ₹5000 crore from past some days indicates continued Bullish picture in the market. Overall, as per price structure, till Nifty holds above 24500 zones, dips could be purchased for the upside target towards 25000 zones. On Weekly basis it has formed a strong Bullish candle indicating continued buying.

On option front, Maximum Call OI is at 25500 then 25000 strike while Maximum Put OI is at 24500 then 24000 strike. Call writing is seen at 24800 then 24850 strike while Put writing is seen at 24500 then 24700 strike. Option data suggests a broader trading range in between 24000 to 25500 zones while an immediate range between 24500 to 24850 levels.

“The RBI Monetary Policy Committee (MPC) announced its decision to maintain the repo rate at 6.5%, emphasizing the need to balance inflation control and growth. The MPC’s statement highlighted a revised FY25 inflation forecast of 4.8% (up from 4.5%), driven by elevated food prices, particularly vegetables, which surged 42% year-on-year in October. Retail inflation in October reached 6.21%, breaching the central bank’s target range.

To address liquidity concerns, the MPC announced a 50 basis points (bps) reduction in the Cash Reserve Ratio (CRR), releasing ₹1.16 lakh crore into the banking system. This move aims to support credit growth while maintaining a neutral monetary stance. The MPC’s decision reflects a delicate balancing act. By tackling inflationary pressures without cutting the repo rate, the RBI signals a cautious yet supportive stance for growth. Liquidity measures like the CRR cut will provide a lifeline for banks to drive lending. Banks, NBFCs, real estate, auto, consumer durables, and infrastructure sectors stand to gain directly from the RBI’s accommodative measures and liquidity infusion. Investors may consider these sectors for potential growth opportunities in the near term.”

RBI Plays the Waiting Game

“The RBI’s December MPC decision reflects a delicate balancing act between addressing domestic liquidity challenges and managing external vulnerabilities. By maintaining the repo rate at 6.5% and implementing a 50 bps CRR cut to 4%, the central bank has infused ₹1.16 lakh crore into the banking system, directly targeting the acute liquidity deficit caused by rupee depreciation and capital outflows. This demonstrates a tactical response to near-term pressures without prematurely altering the broader monetary stance.The downward revision of FY25 GDP growth to 6.6% from 7.2% acknowledges the economy’s structural slowdown, with Q2 growth at 5.4%. High-frequency data, including tepid credit growth and flat industrial output, underscore the challenges to domestic demand recovery. Yet, inflation remains a dual-edged sword. While the FY25 projection of 4.8% offers comfort, persistent food inflation and global shocks keep risks tilted to the upside.This policy signals the RBI’s strategic intent: to alleviate liquidity constraints and stabilize financial conditions while keeping its options open for future rate actions. Governor Das’s acknowledgment of the ‘prolonged last mile of disinflation’ underscores that policy normalization will be data-dependent and gradual. This policy balances the fine line between growth revival and inflation control. The policy moves are clear but cautious—indicating readiness for incremental easing from February 2025, provided inflationary pressures abate and external conditions stabilize. This measured approach underscores the RBI’s focus on preserving economic stability while navigating an increasingly uncertain global landscape.”

“Contrary to our expectations that the RBI would deliver a 25bp cut in the December meeting, the policy rate was left unchanged, although the RBI delivered a cut in the Cash Reserve Ratio by 50bp, as we had anticipated. The policy decision continues to prioritise inflation control over growth rescue. Our view remains that the growth glass is half empty, not half full and the recent sharp slump in GDP growth should have highlighted the higher growth sacrifice involved in keeping policy rates elevated. Meanwhile, the inflation increase is concentrated primarily in a few food items and underlying inflation continues to remain subdued. However, there are indications that the policy paradigm could be shifting, which reflects in additional dissent within the MPC (4-2 vs 5-1 in favour of pause), Governor Das’ commentary that the growth outlook warrants monitoring, and the downgrade of FY25 GDP growth from 7.2% to 6.6%.”

“Amidst lingering inflationary concerns, RBI has decided to keep the repo rate unchanged at 6.5% for the 11th consecutive time, despite GDP growth tapering to 5.4% in Q2FY25 and recent rate cuts by the US Federal Reserve. While a neutral stance signals flexibility and remains focused on stabilizing the macroeconomic environment, a rate cut would have provided the necessary boost to the GDP while also improving homebuyer’s sentiment in the mid-and-affordable housing segment. However, we do anticipate that the RBI would provide the much-needed stimulus soon in the February-2025 MPC meet, to bolster the overall consumer spending. For the housing sector, in particular, lower lending rates would serve as a catalyst for a sustained momentum.”

The MPC’s decision to keep the repo rate unchanged was along expected lines, with the CPI inflation exceeding the MPC’s upper threshold of 6.0%. However, the cut in the CRR by 50 bps would help support growth, after the sharp downward revision in the forecast for FY2025. If the CPI inflation retraces to below 5.0% by the Dec 2024 print, the likelihood of a repo cut in Feb 2025 will rise sharply.

Considering the recent slowdown in economic growth momentum and inflation going up, RBI decided to keep the repo rates unchanged at 6.5% for the eleventh consecutive time. 

To address the liquidity woes, it decided to slash the cash reserve ratio (CRR) to 4%. This cut in CRR is positive for the Indian real estate sector, as banks will have higher lending capacity. This directly supports developers to borrow more for development.

A repo cut in repo rate would have definitely helped boost housing sales momentum further, particularly since we have seen sales tapering in the last two quarters. However, the continuation of relatively affordable home loan interest rates will attract borrowers from this segment, especially since housing prices saw a significant rise in the last quarter.

As per ANAROCK Research, Q3 2024 saw average housing prices rise yearly by a cumulative 23% in the top 7 cities even as average prices in these markets collectively rose to approx. INR 8,390 per sq. ft. by Q3 2024-end, from approx. INR 6,800 per sq. ft. in Q3 2023.

With prices rising, housing sales declined to some extent in Q3 2024. As per ANAROCK Research, Q3 2024 saw residential sales go down by 11% annually against Q3 2023. New launches also fell by 19% in this period.

Thus, the unchanged home loan rates support demand in the ongoing period. Further, given that sales were tapering in the last two quarters, developers too have been cautious about hiking prices lately. In this scenario, it makes sense for homebuyers to press the ‘buy’ button as the overall cost of acquisition of a property will remain relatively affordable.

Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank said, “The RBI delivered in line with our expectations. While retaining its focus on last mile disinflation being achieved the RBI has taken note of the tightening durable liquidity and hence delivered the CRR cut. We see room for a 25 basis points repo rate cut in February with much dependent on the downside risk to growth which we foresee. Further disinflationary trends and global environment will also be key.”

“Monetary policy has delivered exactly what the economy and markets need in the present context. The Governor’s emphasis on price stability is appropriate given the elevated level of inflation. The decision to cut the CRR by 50bp facilitating injection of Rs 1.16 trillion of liquidity into the system will ease the liquidity constraints and more importantly reduce the banks’ cost of funds. From the market perspective, this is an excellent policy response. Banking stocks will remain resilient.”

“The RBI has maintained status quo, clearly expressing its discomfort on inflation levels. With GDP growth rates moderating and with private sector capital expenditure yet to pick up, perhaps they would signal soft interest rates sometime in the near future. CRR reduction by 50 bps should improve liquidity during the busy season, which should help with working capital management. The MSME sector would greatly benefit from a benign interest rate regime and have much more incentive to upgrade and modernise operations, leading to a significant competitive advantage.”

“The RBI kept the repo rate unchanged due to inflationary pressures. Despite the GDP growth rate for Q2 FY25 being significantly lower than expected, the RBI is unlikely to shift its stance to accommodate growth. High-frequency indicators show early signs of recovery in the second half of the fiscal year, but inflation risks remain elevated. Affordability has become challenging as loans remain expensive and property prices have steadily increased. Residential real estate sales have moderated, with high-end, mid-end, and affordable segments largely flat over the last quarter. Factors such as high capital values, inflation pressures, and uncertainty around the RBI’s repo rate cut may lead some homebuyers, especially in metros, to adopt a wait-and-watch approach. Meanwhile, Tier 2 and 3 cities continue to drive growth in housing loans.

“As widely expected, RBI/MPC kept repo rates unchanged. Growth is lower than expected, and inflation higher, above RBI comfort levels. It is possible that growth will pick on back of renewed Government spending in the second half of the financial year. There is pressure on Rupee from sustained FPI selling in equities. Any rate cuts would weaken the Rupee as well. RBI is likely to reduce rates in February policy, once inflation starts easing again. 2 out of 6 MPC members voted for a rate cut, which shows that possibility of rate cut in February are very high.”

As part of Reserve Bank’s consultative approach in framing regulations, a new program, namely Connect to Regulate, will be launched under the ongoing RBI at 90 commemorative events. A dedicated section in the Reserve Bank’s website will be made available for stakeholders to share their ideas

To address the issues of unclaimed deposits in operative accounts and frozen accounts due to pendency of KYC updation, banks have been advised very recently, once again, to take necessary steps urgently, to bring down the number of such accounts and make a process hassle free.

The incoming data suggest that the gap between growth of credit and deposits of scheduled commercial banks has narrowed with deposits keeping pace with loan growth.

Acknowledging the challenges posed by persistent inflationary pressures, the Reserve Bank of India’s decision to maintain the repo rate at 6.5% reflects an understandable approach towards striking a balance between economic and price stability. However, going ahead into the new year, we hope to see the RBI and the government continue to leverage the robust growth and potential offered by real estate and agriculture sectors in particular, via a combination of policy interventions and reduced rates to form a conducive eco-system for sustained and sustainable economic growth.

Central banks are constantly adapting to the new global economic and financial landscape created by geopolitical conflicts, geo economic fragmentation, financial market volatility and continuing uncertainties, all of which are testing the resilience of the global economy