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%

The RBI has been taking various measures in coordination with banks and other stakeholders to prevent and mitigate digital frauds in the financial sector.

Use of money mule accounts is a common method adopted by fraudsters to channel proceeds of frauds. The Reserve Bank is currently running a hackathon on the theme “Zero Financial Frauds” to encourage development of innovative solutions to contain the use of mule accounts. Another initiative in this direction is the AI / ML based model called MuleHunter.AITM, being piloted by Reserve Bank Innovation Hub (RBIH). This model, Shaktikanta Das said, enables detection of mule bank accounts in an efficient manner. “A pilot with two large public sector banks has yielded encouraging results. Banks are encouraged to collaborate with RBIH to further develop the MuleHunter.AITM initiative to deal with the issue of mule bank accounts being used for committing financial frauds,” he said.

To harness the benefits of technologies like Artificial Intelligence (AI)/ Machine Learning (ML), tokenisation, Cloud Computing for the financial sector, Shaktikanta Das said that it is critical to address the attendant risks early in the adoption cycle. “As a step in this direction, it is proposed to constitute a committee to develop a Framework for Responsible and Ethical Enablement of AI (FREE-AI) in the Financial Sector. The Committee will comprise of experts from diverse fields and shall 4 recommend a robust, comprehensive, and adaptable AI framework for the financial sector,” he said.

The RBI governor announced that the central bank has proposed to launch podcasts for wider dissemination of information that is of interest to the general public. The RBI has been deploying traditional as well as new age communication techniques as a key part of its toolkit to ensure transparency and greater impact of its decisions, explain the rationale behind its decisions, and disseminate various awareness messages to a wider audience.

The MPC noted that the near-term inflation and growth outcomes in India have turned somewhat adverse since the October policy. Going forward, however, economic activity is set to improve along with rising business and consumer sentiments, as reflected in the Reserve Bank’s surveys. “The recent spike in inflation highlights the continuing risks of multiple and overlapping shocks to the inflation outlook and expectations. Heightened geo-political uncertainties and financial market volatility add further upside risks to inflation. High inflation reduces the purchasing power of both rural and urban consumers and may adversely impact private consumption. The MPC emphasises that strong foundations for high growth can be secured only with durable price stability,” the central bank stated in a statement.

The MPC remains committed to restoring the balance between inflation and growth in the overall interest of the economy, it added and accordingly, the MPC decided to keep the policy repo rate unchanged at 6.50 per cent in this meeting. The MPC also decided to continue with the neutral stance of monetary policy.

RBI Governor Shaktikanta Das said that the central bank has decided to raise interest rate ceilings on FCNR-B deposits by 400 bps, effective immediately, along with increasing FCNR deposit rates. The move aims to make India a more attractive destination for foreign investments, he added.

At present, interest rates on FCNR-B deposits are subject to ceilings of Overnight Alternative Reference Rate (ARR) for the respective currency/swap, plus 250 basis points for deposits of 1 year to less than 3 years maturity and overnight ARR plus 350 basis points for deposits of 3 years and above and up to 5 years maturity.

The RBI governor said that during the MPC meeting, it has been decided to permit small finance banks also to extend pre sanction credit lines through the UPI. This, he added, will further deepen financial inclusion and enhance formal credit, particularly for the new to credit customers. He added that the necessary guidelines will be issued shortly.

A credit line on UPI was launched in September 2023.

“Credit line on UPI has the potential to make available low-ticket, low-tenor products to ‘new-to-credit’ customers. SFBs leverage a high-tech, low-cost model to reach the last mile customer and can play an enabling role in expanding the reach of credit on UPI,” Shaktikanta Das said.

The RBI governor said that taking into account the rise in agricultural input costs and overall inflation, it has been decided to increase the limit for collateral free agriculture loans from Rs 1.6 lakh crore per borrower to Rs 2 lakh per borrower. This will further enhance credit availability for small and marginal farmers. The limit for collateral free agricultural loans was last revised in 2019.

RBI Governor Shaktikanta Das said that the health of the financial sector is at its best in a long time, while adding that the central bank intervenes on compliance issues only when measures taken by regulated entities ‘are not satisfactory’.

RBI Governor Shaktikanta Das said that indicators suggest that slowdown in economic activity in Q2 has bottomed out.

July-Sept quarter GDP growth was recorded at 5.4 per cent, lower than expectation.

He further added that government capex is likely to pick up going forward.

Indian key indices fell from the day’s high as RBI kept the repo rate unchanged. The Sensex fell more than 200 points to the day’s low of 81,506.19 while the Nifty 50 slid 87.9 points to 24,620.50.

The RBI governor announced that the MPC decided to revise FY25 CPI inflation projection to 4.8% from 4.5% earlier.

Here are CPI inflation projections:

FY25 inflation revised to 4.8% vs 4.5% earlier

Q3FY25 inflation revised to 5.7% vs 4.8% earlier

Q4FY25 inflation revised to 4.5% vs 4.2% earlier

Q1FY26 inflation revised to 4.6% vs 4.3% earlier

RBI Governor said that the MPC decided to cut Cash Reserve Ratio (CRR) by 50 bps to 4% from 4.5%.

He said that the CRR cut will infuse Rs 1.16 lakh crore into the system.

RBI Governor said keeping all the factors in consideration, real GDP growth target for FY25 is revised lower to 6.6%. Q3 growth seen at 6.8% and Q4FY25 growth is seen at 7.2%.

Q1FY26 GDP growth is seen at 6.9%

Q2FY26 GDP growth is seen at 7.3%.

RBI Governor says risks to GDP growth evenly balanced

Slowdown in domestic activity bottomed out in Q2. Strong festival demand, pickup in rural, better Rabi sowing indicate a trend improvement going forward. Cement, iron and steel to see impetus on pick-up in Govt capex.

The RBI governor revised the GDP growth projection from 7.2 per cent, cut down to 6.6 per cent.

Here are the GDP growth projections:

FY25: 6.6%

Q3FY25: 6.8%

Q4FY25: 7.2%

Q1FY26: 6.9

Q2FY26: 7.3%

RBI Governor said that rising protectionism trends globally a key concern

The RBI governor announced that the MSF and SDF rates remained unchanged at 6.75 per cent and 6.25 per cent respectively.

RBI Governor Shaktikanta Das said that the monetary policy committee decided to maintain the monetary stance at ‘neutral’.

“The MPC also decided unanimously to continue with the ‘neutral’ stance and to remain unambiguously focused on a durable alignment of inflation with the target, while supporting growth,” he said.

RBI Governor Shaktikanta Das said that the MPC voted with 4:2 majority to keep the repo rate unchanged at 6.50 per cent and maintained the monetary stance of ‘neutral’.

RBI Governor Shaktikanta Das said that while the price stability is important, growth is important as well for the country. “We need to keep objective of growth in mind,” he said while maintaining that effort to follow the flexible inflation target framework is on the agenda of the central bank.

“Last mile of disinflation is turning out to be prolonged and arduous for economies, he added.

RBI Governor Shaktikanta Das started his speech to announce the decision of the MPC members that met on 4th December to deliberate on the key interest rate and also GDP growth projection for the financial year.

RBI Governor Shaktikanta Das will start the MPC speech anytime now. The MPC is expected to keep the repo rate unchanged at 6.50%.

Stay tuned.

India’s retail inflation surged to a 14-month high of 6.21 per cent in the month of October 2024, driven by a sharp rise in food prices, data released by the Ministry of Statistics & Programme Implementation (MoSPI) showed. In September, CPI inflation came in at 5.49 per cent, higher than 3.65 per cent in August.

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With the Q2 GDP growth recorded at below expected levels of 5.4 per cent and inflation surging to a 14-month high of 6.21 per cent in October, the RBI MPC, per economists and experts, is expected to keep the repo rate unchanged at 6.5 per cent in the meeting. However, a reduction in the cash reserve ratio (CRR) remains a possibility, said experts.

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Broadly as per street expectations, RBI is unlikely to cut rates in the current scenario. Most experts see the possibility of rate cut in FY26 or end of FY25 in the February.

There are expectations that RBI is likely to cut CRR. Given the higher inflation print and Q2 GDP shocker, there are expectations that CRR may be cut to improve liquidity in the economy.

India reported lower than expected Q2 GDP growth dropping to a seven-quarter low of 5.4 per cent, with Gross Value Added (GVA) growth slowing to 5.8 per cent from 6.8 per cent in Q1. This was down from 8.1% in the same period last year, primarily due to a weaker performance in the manufacturing sector.

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At the end of April meeting, the RBI MPC decided not to hike the country’s repo rate. The RBI MPC, with a 5:1 majority, maintained the withdrawal of accommodation stance. The RBI had also stated the real GDP growth projection for FY24 was at 6.5 per cent. However, fears of sustained core inflation remain persistent on weather-related vagaries, OPEC+’s surprise announcement and rising commodity prices.

After the June 2023 meeting, RBI Governor Shaktikanta Das had said that the MPC has decided to keep the key policy repo rate unchanged at 6.5 percent. Shaktikanta Das had said, “MPC also decided by a majority of five out of 6 members to remain focused on withdrawal of accommodation to ensure inflation aligns with the target while supporting growth.” He also said that the standing deposit facility rate remained at 6.25 per cent, and marginal standing facility rate and bank rate remained unchanged at 6.75 per cent.

During the August meeting, the RBI MPC had decided to keep the repo rate unchanged at 6.50 per cent, maintaining the status quo for the third time in a row. The MPC voted in 5:1 majority to maintain the ‘withdrawal of accommodation’ stance to ensure that inflation progressively aligns with the target, while supporting growth, Shaktikanta Das had said during his speech. “Consequently, the standing deposit facility (SDF) rate remains at 6.25 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent,” he had added.