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%

Manju Yagnik, Vice Chairperson of Nahar Group and Senior VP, NAREDCO, Maharashtra, said, “The RBI‘s decision to retain the repo rate at 6.5% for the 11th consecutive time is a balanced approach to manage growth and inflation. With India‘s GDP expected to grow at 6.5–7% in FY 2024-25 and the real estate sector contributing 7% to the economy, this stability is vital for maintaining economic momentum. A steady rate ensures consistent repayment terms, which increases the confidence of homebuyers and encourages investments in the sector. With property prices rising, stable lending conditions and a steady market make real estate a key driver of economic growth, boosting demand and contributing significantly to India’s economic progress.”

Dr VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said, “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.”

Aditi Nayar, Chief Economist & Head Research Outreach, ICRA Ltd, said, “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.”

Anurag Mittal, Head of Fixed Income at UTI AMC, said, “The RBI did not let the temporary spike in inflation deviate from monetary easing. The CRR cut is constructive for liquidity and paves the way for rate cut in February once there is better clarity on inflation. We continue to expect 50-75bps of rate cuts in this cycle and remain constructive on duration.”

Dharmakirti Joshi, Chief Economist, CRISIL, said, “The Reserve Bank of India (RBI) has tried to address an unfavourable growth-inflation matrix by reducing the cash reserve ratio (CRR) and retaining the repo rate. The CRR was cut to prevent excessive draining of liquidity from the economy, which typically curbs economic growth. After two reductions, the CRR requirement will be back to the pre-pandemic level of 4% this fiscal. But the status quo on policy rates reflected the central bank’s steadfast focus on its prime objective of managing inflation.”

He further stated that the RBI expects elevated food inflation to continue in the third quarter and has raised its inflation forecast by 10 basis points (bps) for the full fiscal 2025. The sharper-than-expected gross domestic product (GDP) slowdown in the second quarter, he said, led the RBI to revise lower its projection by a significant 60 bps to 6.6%. “But the RBI sees the slowdown in the second quarter as transitory and localised to a few manufacturing sectors and expects things to turn better in the second half. Nevertheless, it underscored its intent to act if growth slowdown gets prolonged. The neutral stance gives it flexibility to cut rates. We expect conditions to turn favourable for rate cuts with the first one in February. Inflation is expected to ease towards the end of this fiscal given healthy agricultural output. When the rabi, or winter, crop reaches the market, vegetable prices tend to correct sharply. That, in turn, should also improve consumption and growth in the second half of this fiscal,” he added.

Vishal Raheja, Founder & MD, InvestoXpert, said, “The RBI‘s decision to hold the repo rate steady at 6.5% amid inflation running at 5.3% in November 2024 signals its commitment to managing price stability in the economy. For the real estate market, this move ensures that home loan rates remain predictable, offering some relief to prospective buyers despite the pressures of inflation. While inflation continues to affect household budgets, the stability in borrowing costs helps prevent further escalation in home loan EMIs, which could otherwise dampen demand in the housing market. With India‘s GDP growth slowing to 5.4% in Q3 2024, the RBI’s cautious stance provides a buffer against rising costs, allowing homebuyers to manage their finances more effectively. This balance between controlling inflation and maintaining affordable financing conditions plays a key role in sustaining demand in the residential sector.”

Anitha Rangan, Economist, Equirus, said, “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 the 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. 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!”

Aman Trehan, Executive Director, Trehan Iris, said, “We welcome the RBI’s decision to maintain the repo rate at 6.5% as it brings much-needed stability to the real estate sector. For the residential market, this decision ensures growth in market activity and boosts demand, especially for luxury properties. With interest rates remaining stable, potential homeowners can plan their investments with confidence, knowing that borrowing costs will remain predictable and manageable. For us, this stability enables us to move forward with ongoing and new residential projects, with a clearer understanding of market conditions. It also enhances demand for residential properties, as buyers are encouraged by the favorable financing environment. Additionally, as the cost of financing remains under control, homebuyers can secure better deals, further stimulating growth in the sector. Ultimately, this move supports the long-term health of the residential market, benefiting both developers and buyers alike.”

Yateesh Wahaal, Director, M3M India, said, “The Reserve Bank of India’s decision to maintain the repo rate at 6.5% is a welcome development for the real estate sector. By ensuring that home loan interest rates remain stable, it supports sustained demand across residential and commercial segments. With inflation under control, this decision creates an environment of predictability, empowering developers to strategize their projects and pricing effectively. The move underscores the government’s focus on balancing economic growth with financial stability, and we foresee continued positive momentum in the real estate market as a result of this steady rate regime.”

Jigar Trivedi, Senior Analyst, Reliance Securities, said, “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.”

He further added, “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.”

“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 FY25 which will be supported by a pickup in government spending.”

Pralay Mondal, MD & CEO, CSB Bank, said, “The move to lower CRR is a welcome step as it releases funds for banks to lend. RBI’s stance on inflation and therefore on repo rate will have long term implications of lowering inflation and stabilising currency. SORR is a much needed benchmark as it incorporates both regulatory rates and market sentiments. Overall a very prudent approach which focuses on long term interests of the country while calibrating the short term mismatch.”

Samir Jasuja, Founder & CEO, PropEquity, said, “In order to achieve a $1 trillion real estate economy, radical reforms on the fiscal and monetary fronts must be initiated, including making home loans both accessible and affordable in order to tap into the huge housing demand and thereby unleash the full potential of the Indian economy. The cut in CRR by the RBI today will shore up the liquidity in the economy and help developers borrow more as there is an unlimited requirement for funds in this sector. However, a cut in repo rate would have given a fillip to consumption and helped boost housing demand.”

Rahul Bajoria, Head of India and ASEAN economic research, BofA Securities, said, “The recent pick up in October CPI inflation at 6.2% notwithstanding, we believe monetary policy has pivoted further to support growth, as medium-term inflation forecasts for both the RBI and for BofA are broadly aligning with the 4% target on a durable basis. With November CPI inflation print likely coming in below 6%, hence, we maintain our rate cut call of cuts beginning in February MPC meeting, and continue to expect 100bp of cuts in the cycle, given a durable alignment of headline CPI close to 4% through 2025. This will bring the repo rate to 5.50% by end-2025, which we identify as being close to the neutral rate. If inflation comes off below 5% in November print next week, risks of an intermeeting rate cut would rise.”

Rajeev Radhakrishnan, CIO – Fixed Income, SBI Mutual Fund, said, “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.”

Umeshkumar Mehta, CIO, SAMCO Mutual Fund, said, “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 a stance in line with global monetary developments.”

Naveen Kulkarni, Chief Investment Officer, Axis Securities PMS, said, “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 RBI governor said that India has, in the last few years, traversed one of the most difficult periods in the history of the country’s economy and even the global economy. He said, “It was a period of relentless turbulence and jolts. As a country, we can derive satisfaction that the Indian economy has not just navigated this period of trials successfully but also emerged stronger.”

RBI Governor Shaktikanta Das said, “Since the last policy, inflation has been on the upside, while there has been a moderation in growth. Accordingly, the MPC has adopted a prudent and cautious approach in this meeting to wait for better visibility on the growth and inflation outlook. At such a critical juncture, prudence, practicality and timing of decisions become even more critical. Our endeavour in the Reserve Bank has always been to implement timely and carefully calibrated measures to derive maximum impact. This will continue to be the guiding principle for all future actions also. As Mahatma Gandhi had said and I quote: “There is nothing that cannot be attained by patience and equanimity”.

RBI Governor Shaktikanta Das said that with a view to further develop the interest rate derivatives market in India and improve the credibility of interest rate benchmarks, the RBI has proposed to introduce a new benchmark – the Secured Overnight Rupee Rate (SORR) – based on all secured money market transactions – overnight market repo as well as TREPS.

The RBI governor said that the FX-Retail platform, which was launched in 2019, is now proposed to be linked with the Bharat Connect platform of NPCI. “This would enable users to transact on the FX-Retail platform through mobile apps of banks and non-bank payment system providers. This will expand the reach of FX-Retail platform, enhance user experience and promote fairness and transparency in pricing with adequate safeguards,” he added.

On the external financing side, RBI Governor Shaktikanta Das said, gross foreign direct investment (FDI) to India increased at a robust pace during the first half of the year. Net FDI, however, moderated during this period due to higher repatriations and rising outward FDI. Foreign portfolio investment (FPI) inflows to EMEs have generally declined in October 2024. Net FPI inflows to India stood at US$ 9.3 billion in 2024-25 so far (April-December), supported mainly by inflows in the debt segment. External commercial borrowings and non-resident deposits, on the other hand, witnessed higher net inflows compared to last year. “India’s external sector remains resilient, as reflected in various key indicators where India has been consistently performing well,” he said.

India’s merchandise exports expanded at a 28-month high pace in October. Merchandise imports also increased for the seventh consecutive month. Services exports sustained buoyancy and posted double-digit growth in Q2FY25 as well as in October 2024. “The robust services exports, coupled with strong remittance receipts, are expected to keep the current account deficit (CAD) within sustainable levels during 2024-25,” Shaktikanta Das said.

Shaktikanta Das said that in order to address the issues of unclaimed deposits, inoperative accounts and frozen accounts due to pendency of KYC updation, banks have been advised to take necessary steps urgently to bring down the number of such accounts and make the process hassle free. Further, he added, banks have been advised to segregate the accounts of beneficiaries of various Central/ State Government schemes through direct benefit transfer (DBT) and facilitate uninterrupted credit and utilisation of DBT amounts, without inconveniencing such vulnerable segments of customers. Progress made by individual banks in this regard will be monitored by the Reserve Bank, he said.

The RBI governor said, “The financial parameters of banks and NBFCs continue to be strong. The incoming data suggests that the gap between growth of credit and deposits of scheduled commercial banks (SCBs) has narrowed with deposits keeping pace with loan growth.”

RBI Governor Shaktikanta Das said, “During 2024-25 (April-November), the INR depreciated by 1.3 per cent largely due to pressure from strengthening US Dollar and selling pressure by foreign portfolio investors in October and November. Nevertheless, both the depreciation of the INR and its volatility was less as compared to its EME peers, reflecting India’s strong macroeconomic fundamentals and improvement in external sector outlook.

The RBI governor said that the near-term inflation and growth outcomes in India have turned somewhat adverse since the October policy. “The medium-term prognosis on inflation suggests further alignment with the target, while growth is expected to pick up its momentum. Persistent high inflation reduces the purchasing power of consumers and adversely affects both consumption and investment demand. The overall implication of these factors for growth is negative. Therefore, price stability is essential for sustained growth. On the other hand, a growth slowdown – if it lingers beyond a point – may need policy support,” Shaktikanta Das said.

Shaktikanta Das said that high frequency indicators available so far suggest that the slowdown in domestic economic activity bottomed out in Q2FY25, and has since recovered, aided by strong festive demand and pick up in rural activities.

“Agricultural growth is supported by healthy kharif crop production, higher reservoir levels and better rabi sowing. Industrial activity is expected to normalise and recover from the lows of the previous quarter. The end of the monsoon season and the expected pick up in government capital expenditure may provide some impetus to cement and iron and steel sectors. Mining and electricity are also expected to normalise post the monsoon-related disruptions. The purchasing managers’ index (PMI) for manufacturing at 56.5 for November remained elevated. The supply chain pressures eased in October-November and fell below the historical average. The services sector continues to grow at a strong pace. PMI services remained steady at 58.4 in November, indicating continued expansion,” he said.

RBI Governor Shaktikanta Das said, “The global economy has shown unusual resilience in 2024 despite several headwinds.Inflation is gradually moving towards target from its multi-decadal highs, prompting several central banks to embark on policy pivots. Global trade remains resilient with increasing volumes confined within geopolitical blocs. Since the last MPC meeting, financial markets have remained edgy amidst rising US dollar and hardening bond yields, resulting in large capital outflows from emerging markets and volatility in equity markets. Going forward, the outlook is clouded by rising tendencies of protectionism which have the potential to undermine global growth and push inflation higher.”

RBI Governor Shaktikanta Das said, “High inflation reduces the disposable income in the hands of consumers and dents private consumption, which negatively impacts the real Gross Domestic Product (GDP) growth. The increasing incidence of adverse weather events, heightened geopolitical uncertainties and financial market volatility pose upside risks to inflation. The MPC believes that only with durable price stability can strong foundations be secured for high growth.”

He further added that the MPC remains committed to restoring the inflation growth balance in the overall interest of the economy. Accordingly, the MPC decided to keep the policy repo rate unchanged at 6.50 per cent in this meeting and continue with the neutral stance of monetary policy.