RBI keeps key interest rates unchanged, cuts CRR to bolster slowing economy
The RBI revised its economic growth forecast for the fiscal year ending March 2025, lowering it from 7.2% to 6.6%. Simultaneously, the inflation forecast was raised from 4.5% to 4.8%.
The Reserve Bank of India (RBI) kept its key interest rate steady at 6.5% during its 11th consecutive policy meeting on Friday, citing persistent inflation risks. However, to address slowing economic growth, it reduced the Cash Reserve Ratio (CRR) by 50 basis points to 4%, injecting ₹1.16 lakh crore into the banking system.
India’s GDP growth for the July-September quarter slowed to 5.4%, the weakest in seven quarters, while inflation surged to 6.21% in October, well above the RBI's 4% target. RBI Governor Shaktikanta Das highlighted the importance of a cautious approach, describing the CRR cut as a necessary step to ease liquidity while maintaining a neutral policy stance.
Das emphasized that price stability is crucial as it directly impacts people's purchasing power. While he acknowledged that policy support might become necessary if the growth slowdown persists, he expressed confidence in the economy’s resilience, noting that despite recent aberrations in growth and inflation, the economy remains on a sustained and balanced path.
Food inflation pressures are expected to linger through the third quarter (October-December). Still, they should ease in the fourth quarter, driven by seasonal corrections in vegetable prices, the arrival of the Kharif harvest, a potentially strong Rabi output, and sufficient cereal buffer stocks. Reserve Bank Governor expressed confidence that growth in the second half of the fiscal year would be much better than the April-September period
The RBI revised its economic growth forecast for the fiscal year ending March 2025, lowering it from 7.2% to 6.6%. Simultaneously, the inflation forecast was raised from 4.5% to 4.8%. To counter rupee depreciation, the RBI raised the cap on interest rates for Non-Resident Indian (NRI) foreign currency deposits. This move aims to attract additional capital inflows and stabilize the rupee.
The RBI also announced a raise in the interest rate caps on the diaspora foreign currency deposits, in a move aimed at attracting more capital inflows amid pressure on the rupee.
Additional measures included increasing the collateral-free loan limit for small and marginal farmers from ₹1.6 lakh to ₹2 lakh per borrower, enhancing credit availability in the agriculture sector. Furthermore, small finance banks were permitted to extend pre-sanctioned credit lines via UPI to improve financial accessibility.
In a forward-looking initiative, the RBI announced the creation of a committee to develop a Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI) in the financial sector, reaffirming its commitment to innovation and governance.
As Governor Das nears the conclusion of his term, his focus on stability and resilience reflects the RBI’s strategy of measured interventions amid a globally turbulent economic environment.
