The Reserve Bank of India (RBI) is currently conducting the last monetary policy committee (MPC) meeting led by Governor Shaktikanta Das before his term concludes. As the repo rate is likely to remain unchanged at 6.5%, all attention is focused on the possibility of a CRR cut, seen as a crucial move that could introduce substantial liquidity into the banking sector.
Amidst concerns of tight liquidity and subdued economic growth, there is growing anticipation for the first CRR reduction in over four years. The recent dip in GDP growth to 5.4% in the July-September quarter has intensified calls for measures to stimulate lending and economic activity. Analysts project a CRR cut of 25-50 basis points, translating to an injection of funds ranging from Rs 55,000 crore to Rs 1.2 lakh crore into banks to facilitate fresh loans.
Experts view a potential CRR cut as a more feasible option compared to a repo rate adjustment since it directly addresses liquidity concerns without impacting interest rate stability. This balance is crucial in light of lingering inflation worries. The current CRR stands at 4.5%, mandating banks to retain a portion of their deposits with the RBI. A reduction in the CRR would release these funds, allowing banks to increase lending capacity promptly, unlike adjustments in the repo rate that come with interest rate implications.
The significance of this MPC meeting extends beyond policy decisions, as Governor Das's future remains uncertain with no official announcement regarding his reappointment. While reports suggest a possible two-year extension for him, clarity is yet to be provided. The meeting holds importance as it navigates competing economic signals of stabilizing inflation and fostering growth, placing pressure on the RBI to make informed decisions to sustain economic momentum.