RBI MPC Dec 2024: Central Bank Slashes CRR By 50 Bps, Here's What It Means

This cut will be implemented in two phases of 25 basis points each and will come into effect on December 14 and December 28 this year

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) on Friday announced a reduction in the Cash Reserve Ratio (CRR) by 50 basis points. Governor Shaktikanta Das revealed the final decision of the committee on key rates and overall monetary policy after the 3-day meeting concluded.

The committee kept the repo rate unchanged at 6.5 per cent, while the CRR was cut down to 4 per cent. This cut will be implemented in two phases of 25 basis points each and will come into effect on December 14 and December 28 this year.

The governor said that this reduction in the CRR would help release Rs 1.6 trillion in the domestic banking system and provide more liquidity to the system. The CRR represents the percentage of overall deposits a bank is mandated to keep in liquid cash with the RBI. Essentially, a lower CRR will help banks build their lending capacity.

Das stated that this move also aligned with the regulator’s neutral stance on monetary policy and this reflected a balanced approach to manage liquidity and ensure economic stability.

Kaushal Agarwal, Co-Founder and Director, The Guardians Real Estate Advisory stated, "The RBI's decision to keep the repo rate unchanged and lower the CRR shows strategic efforts to balance more cash flow with inflation control. Reducing the CRR to 4 per cent allows banks to lend more, which is a positive step for the real estate sector."

Additionally, the committee projected the real GDP growth figure for the current 2024-25 fiscal year (FY25) to be 6.6 per cent, downgrading from its earlier estimate of 7.2 per cent. The retail inflation estimate for the year was revised upwards to 4.8 per cent citing a slowdown in economic activity and consistenly elevated food prices.

Further, the MPC also decided to hike the limit for collateral-free agricultural loans to Rs 2 lakh per borrower, against the earlier limit of Rs 1.6 lakh. This decision is expected to increase the availability of credit for marginal and small farmers. The central bank also allowed small finance banks to extend pre-sanctioned credit lines via UPI to boost formal credit and financial inclusion.