MUMBAI (Reuters) – The Reserve Bank of India (RBI) kept its key interest rate unchanged on Friday but cut the cash reserve ratio (CRR) that banks are required to hold for the first time in over four years, effectively easing monetary conditions as economic growth slows.
India’s GDP growth rate fell unexpectedly to 5.4% in the July-September quarter, its slowest pace in seven quarters, while inflation is quickening again and the rupee has fallen to record lows, limiting the RBI’s room to manoeuvre heading into what looks to be a globally turbulent 2025.
To balance the conflicting pressures on the economy, the central bank eased liquidity conditions, while announcing steps to draw more foreign currency deposits, but kept its benchmark policy rate unchanged for now. The CRR was cut by 50 basis points to 4%, effective in two tranches on Dec. 14 and Dec. 28. The move will infuse 1.16 trillion rupees ($13.72 billion) into the banking system.
The benchmark repo rate, however, was left unchanged at 6.50% for an eleventh straight policy meeting, with officials flagging persistent price pressures. Four of six members of the monetary policy committee voted to keep rates unchanged.
The central bank also raised its inflation forecast for the year and cut its economic growth forecast. It lowered its growth forecast for the year ending March 2025 to 6.6%, from its earlier forecast of 7.2%, following the weaker-than-expected print for the second quarter.
The RBI governor, Shaktikanta Das, said that price stability is important to people because it impacts their purchasing power, and that ensuring “durable” price stability is critical to ensuring high growth in the economy. However, he added that policy support may be needed if the growth slowdown “lingers”.
The central bank also raised its average retail inflation forecast for the current financial year to 4.8% from 4.5% previously. Annual retail inflation rose to 6.21% in October, breaching the central bank’s tolerance band for the first time in more than a year.
To fight pressure on the Indian rupee, which has fallen to all-time lows amid a stronger dollar and outflows from the equity market in October and November, the central bank said banks could offer higher interest rates on some foreign currency FCNR-B deposits.
