RBI cuts the cash reserve ratio while standing pat on rates

• Policy rates unchanged amid high inflation: The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) kept the repo rate unchanged at 6.5%, and maintained stance at ‘neutral’ during its December review meeting. The rise in headline inflation - the RBI’s main target - in the past three months is what kept the rate cut away. That said, the MPC noted the sharp slowdown in economic growth during the second quarter. The neutral stance gives it flexibility to change the repo rate in upcoming monetary policy, depending on economic data
  
• CRR cut to prevent liquidity drag on growth: The RBI will cut the cash reserve ratio (CRR) in two tranches of 25 basis points (bps) in December, bringing it to 4% this fiscal - on a par with pre-pandemic rates. These cuts will swiftly boost systemic liquidity - which is seeing signs of pressure - and keep financial conditions conducive for growth
  
• Inflation projection revised, growth down: The MPC raised its forecast for the Consumer Price Index (CPI)-based inflation by 30 bps to 4.8% for fiscal 2025, expecting inflation to stay elevated till the third quarter
  
• Gross domestic projection (GDP) was revised down a sharp 60 bps to 6.6% after growth in the second quarter came well below expectations. The RBI saw the slowdown in the second quarter as transitory, but underscored its intent to act if growth slowdown is prolonged