RBI Monetary Policy Meeting HIGHLIGHTS: RBI CUTS CRR by 50 bps to 4%, keeps repo rate UNCHANGED, FY25 GDP target revised LOWER to 6.6%

Arsh Mogre, Economist Institutional Equities, PL Capital - Prabhudas Lilladher, said, “By maintaining the repo rate at 6.5% and implementing a 50 bps CRR cut to 4%, the central bank has infused Rs 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.”

He added, “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.”

Zarin Daruwala, CEO, India and South Asia, Standard Chartered Bank, said, “The MPC’s decision to hold repo rate in the face of slower growth, shows its focus on reining in inflation. It also validates that the MPC is confident that economic growth will revive in the coming months on the back of government spending and improved industrial activity. The revised CPI and GDP forecast of 4.8% and 6.6% respectively, seem achievable. The 50 bps cut in the cash reserve ratio (CRR) is a welcome move and will help address part of the recent reduction in system liquidity. The additional measures which include temporarily incentivising FCY deposits for attracting capital inflows, improving access to better foreign exchange pricing for individuals and SMEs and allowing small-finance-banks to extend pre-sanctioned credit through UPI and Fintech should help improve the market sentiment.”

Dr Manoranjan Sharma, Chief Economist, Infomerics Ratings, said, “The MPC has taken the right call and is entirely in line with our expectations. The RBI has kept the repo unchanged at 6.5 % since February 2023, and given the macroeconomic landscape, this is not the right time to tweak this rate. There was a strong case for a CRR cut to ease liquidity without spiking inflation. This would also provide banks with additional resources to support credit growth and strengthen financial stability. The decelerating growth would induce a cut in the RBI’s growth projections for FY25- the RBI cut the growth forecast to 6.6% from the earlier 7.2%. We also anticipated that the neutral stance would continue.”

Ajay Kumar Srivastava, Managing Director and CEO, Indian Overseas Bank, said, “The RBI’s decision to keep the repo rate unchanged at 6.50% and the GDP growth projection at 6.6% in FY25 reflects a practical and balanced approach to navigate the inflationary pressures while supporting economic growth. Its decision to reduce CRR to 4% will act as a catalyst in the release of Rs 1.16 lakh crore into the economy, improving liquidity and enabling banks to enhance lending to various sectors. Another positive move has been the decision to raise rates on FCNR (B) deposits from 1-3 years to 400 BPS which is expected to attract more capital inflows and benefit the banking sector. We welcome the introduction of Mulehunter.AI, which will enable the banking sector to address the issue of mule accounts efficiently, ensuring greater security and trust in the digital ecosystem.”

Shreya Sodhani, Regional Economist, Barclays, said, “After a disappointing Q2 FY2025 GDP print, expectations for monetary easing in this meeting were running high. However, we had noted that the sharp increase in CPI inflation in October, breaching the 6% mark, would make it difficult for the MPC to deliver a rate cut. The governor underscored the same. He was quick to remark that if growth slowdown lingers beyond a point, monetary policy support may be needed. The MPC's commitment to restore the balance between inflation and growth was quite clear in today's meeting. Going forward, as the worst of quarterly growth reading and peak inflation seem to be behind us, we expect the MPC to derive comfort from the same and commence rate easing from February 2025, cutting the policy repo rate by 25bp.”

Manish Lunia, Co-Founder, Flexiloans.com, said, “The RBI's decision to keep the repo rate unchanged at 6.5% is a prudent move, ensuring stability in the lending ecosystem amidst global uncertainties. For MSMEs, this policy continuity offers a much-needed boost, keeping borrowing costs predictable and enabling sustained credit flow to support business growth. Coupled with the RBI's optimistic GDP growth projection of 6.5-7%, this creates a favorable environment for small businesses to invest, expand, and contribute to India's economic momentum.”

Ashwin Chadha, CEO, India Sotheby's International Realty, said, “RBI's decision to keep the repo rate unchanged is a balanced step in managing inflation. For the real estate sector, this stability ensures unchanged mortgage rates and supports the robust demand we've been witnessing in housing sales, particularly in the premium and luxury segments. With inflationary pressures under check and buyer confidence holding steady, we remain optimistic about continued momentum in the market, driving long-term growth."

“As expected, the Monetary Policy Committee (MPC) has given precedence for infusing durable liquidity over policy rate reduction as an immediate measure to address shallow systemic liquidity and support growth. Increase in banking system liquidity by over Rs 1 Lakh crore in the next 3 weeks will cool off the money market rates and lead to marginal reduction in term deposit rates as we move to CY 2025.

Further, the CPI trajectory projected by MPC showing descent from 4.5% Q4 FY 25 to 4% Q2 FY 26 coupled with a forward looking assessment approach usually adopted in rate decisions; opens space for commencement of rate easing cycle from Feb MPC meeting. MPCs comfort on stability in USD INR pair factoring in the impact of the transition of government in the US in Jan 25 will also be key determinant in the final decision on rate easing in FEB 25.

Though the increase in ceiling on FCNR deposit interest rates will have sentimental impact, an actual incremental influx of dollars needs to be watched, as the banks present USD FCNR rates are way below the present ceilings available. Hitting the revised upward ceiling will increase the covered cost of funds through the FCNR route significantly adding to the impact due to the recent surge in forward premium induced by large rupee volatility.”

Vikas Garg, Head of Fixed Income, Invesco Mutual Fund, said, “Amidst the dilemma of sharp growth slowdown and still-elevated inflation, the MPC maintains a balanced approach by keeping both policy rates and stance unchanged while addressing tight banking liquidity concerns through a 50-bps CRR cut. The revision of FY25 growth and inflation projections to 6.6% and 4.8%, respectively, reflects an adverse balance, necessitating support for growth. Even though the MPC has maintained a data-dependent approach, a policy rate cut in February 2025 is highly likely, as growth may surprise on the downside and headline inflation is expected to realign close to 4% in FY26, driven by receding food inflation. Overall, the MPC's actions were in line with expectations and are moving towards easing policy. The next quarter is expected to benefit from improved liquidity, anticipated rate cuts, and favourable demand-supply dynamics.”

Parijat Agrawal, Head of Fixed Income at Union Asset Management Company Private Limited, said, “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.”

Amit Somani, Senior Fund Manager - Fixed Income, Tata Asset Management, said, “RBI took a practical approach in calibrating balance between unexpected higher Inflation as well as lower Growth, even as Rupee remained under pressure due to global USD strength. Expectedly, RBI revised FY25 forecast for CPI Inflation higher and GDP Growth lower. To create a guard against currency headwinds, RBI relaxed interest rate ceilings on FCNR (B) Deposits till March 2025. To address the likely tightening of liquidity conditions further over next few months - on account of tax outflows, currency in circulation and volatile capital flows - RBI gave a 50bps CRR cut, restoring it back to 4%. This is likely to stabilize short-term rates in the near term, with one year CD rates trading around 7.50%-7.60% levels.”

Sunil Sisodiya, Founder, Geetanjali Homestate, said, “The RBI's decision to maintain the repo rate at 6.5% provides stability to the real estate sector, particularly for developers navigating a challenging market. Over the past year, housing prices in major cities have surged by 23%, creating pressure on affordability. However, the RBI’s steady approach prevents further escalation of borrowing costs, giving developers the confidence to proceed with large-scale projects without the added burden of rising interest rates. This stability is crucial as the real estate sector plays a key role in India’s economy, contributing around 7% to GDP. While the increase in property prices remains a concern for buyers, developers can continue to plan ahead, knowing that interest rates will not increase in the near term. The RBI's move thus supports both ongoing construction activities and future investment in the sector.”

Vijay Kuppa, CEO, InCred Money, said, “While there were some expectations of a repo rate cut on the back of a lower than anticipated Q2FY25 GDP growth, the MPC has maintained the repo rate at 6.5% with a neutral stance. The MPC continues its focus to get inflation under control on a durable basis while supporting growth objectives at the same time. RBI has decided to cut the Cash Reserve Ratio (CRR) by 50 basis points will release Rs 1.16 lakh crore into the system, which will address liquidity deficits, boost lending, and support economic activity. The challenges are quite clear: GDP growth for FY25 has been downgraded to 6.6% from from 7.2%, with Q2 FY25 growth at a seven-quarter low of 5.4%. The manufacturing sector, once the recovery’s backbone, grew by just 2.2% in Q2FY25, sharply down from 14.3% last year, reflecting weaker urban demand, a global export slowdown, and dollar-driven input cost pressures. Inflation remains sticky, with October CPI at 6.21%, breaching the RBI’s comfort zone of 4% (+-2%), mostly due to food inflation crossing 8%. While the CRR cut offers some relief, structural issues like global uncertainties and uneven domestic demand need sustained attention.”

Dhiraj Relli, MD & CEO, HDFC Securities, said, “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.”

“RBI governor's statement for the latest MPC highlights the increased dilemma on growth-inflation balance, amidst sticky headline inflation and a slowdown in growth seen in Q2. As expected, MPC has attempted to address it by a cut back in CRR by 50 bps while keeping the status quo on the benchmark rates. Higher system liquidity will soften short term interest rates and can reduce the pressure on bank deposit rates. RBI had to modify its forecasts on growth and inflation given the latest data prints. There is a significant downward revision in GDP growth to 6.6% from the earlier 7.2% which is still 20 bps higher than our revised forecast of 6.4%. Given the slower decline in food inflation in the current quarter, RBI has also revised its average inflation forecast to 4.8% from 4.5%, which is almost 1% higher than the target level.”