RBI monetary policy: MPC cuts CRR by 50 bps to 4%; market turns positive

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) on Friday reduced the Cash Reserve Ratio (CRR) by 50 basis points to 4%, bringing it back to the level before the policy tightening cycle began in April 2022. The announcement was made by Governor Shaktikanta Das in his final speech of this term.

“It has been decided to reduce the cash reserve ratio (CRR) of all banks by 50 bps in two equal tranches of 25 bps each to 4% of net demand and time liabilities (NDTL) with effect from the fortnight beginning December 14, 2024 and December 28, 2024, respectively. This will restore the CRR to 4% of NDTL, which was prevailing before the commencement of the policy tightening cycle in April 2022. This reduction in the CRR would release primary liquidity of about Rs 1.16 lakh crore to the banking system,” the policy speech said.

Also read | RBI cuts CRR by 50 bps: FD investors set to see interest rate cuts in 2025, know which FDs will be impacted first

CRR is a percentage of a bank’s deposits that must be kept with the RBI as reserves.

Following the announcement, the stock markets recovered, with bank and financial stocks turning positive.

The banking gauge, Nifty Bank, was up 0.13% or 69 points at 53,672.75 around 10:35 am, reversing from the day’s low of 53,160.65.Meanwhile, Nifty PSU Bank surged 1%, with Canara Bank, Union Bank, and Bank of Baroda (BoB) among the top gainers at that time.Not just banks, but the interest-sensitive realty sector also pared its losses, trading flat at 1,073.75 after hitting the day’s low of 1,061.95 before the announcement.

Meanwhile, auto stocks continued to gain, with Samvardhana Motherson International, Bajaj Auto, and Bosch seeing an uptick of over 4%. Ten stocks in the Nifty Auto index were in the green, while five were trading in the red.

On Friday, the RBI left the repo rate unchanged at 6.5% for the 11th time in a row following a three-day meeting. It was a 4:2 decision as the rate-setting committee maintained its neutral stance.

The Governor said that price stability was a mandate given to the RBI while emphasising that growth too was important. MPC also took note of the recent GDP growth slowdown, Das said.

The MPC cut its FY25 GDP estimates to 6.6% from the 7.2% it made earlier while putting CPI inflation estimated for 2024-25 at 4.8%.

It attributed a lower-than-expected growth of 5.4% in Q2 to fall in private consumption and investment despite government spending recovering from a contraction in the previous quarter.