The Reserve Bank of India (RBI) left its benchmark interest rate unchanged at 6.5% for the 10th consecutive meeting, but cut its cash reserve ratio (CRR) to 4% from 4.5%. The decision comes as recent data showed a sharp cooldown in economic growth.
The RBI also cut its economic growth outlook for the current financial year, while hiking its inflation forecast. Governor Shaktikanta Das stated that the CRR cut was aimed at maintaining price stability, which is necessary for strong foundations for high growth.
The CRR cut does not directly affect lending rates, but it releases more liquidity into the economy and is expected to be stimulative. Das noted that the recent GDP reading was driven by a substantial deceleration in industrial growth, particularly in sectors such as oil and cement. However, he believes industrial activity will recover in the current quarter.
The RBI has shifted its stance from restrictive to neutral, with expectations of beginning to trim rates in 2025 if inflation remains on a downward trend. Inflation data for the current financial year is expected to be 4.8%, above the RBI’s 4% to 6% target range.
Das warned that food inflation pressures will likely linger in the current quarter, but will start to ease in the next quarter. The RBI has maintained a neutral stance, focusing on keeping inflation in check, with the goal of securing strong foundations for high growth.
