To address potential liquidity stress, the Reserve Bank of India (RBI) announced a 50-basis-point reduction in the Cash Reserve Ratio (CRR) on Friday, bringing it down to 4%. The move is set to release ?1.16 lakh crore into the banking system, offering relief amid tightening liquidity conditions.

RBI Governor Shaktikanta Das stated that while system liquidity remains in surplus, factors such as tax outflows, increased currency circulation, and volatile capital flows could strain liquidity in the months ahead. To counter this, the CRR cut will be implemented in two phases of 25 basis points each, effective from December 14 and December 28, 2024. This adjustment restores the CRR to pre-tightening levels seen before April 2022.

Das emphasized that this measure aligns with the RBI's neutral policy stance, aimed at maintaining orderly money market conditions and ensuring adequate liquidity for the economy's productive needs. The decision also underscores the RBI's proactive approach to liquidity management as it navigates evolving economic conditions.

Despite the CRR reduction, the Monetary Policy Committee (MPC) has opted to maintain the repo rate at 6.5% for the 11th consecutive time. The standing deposit facility (SDF) rate and marginal standing facility (MSF) rate remain at 6.25% and 6.75%, respectively, with the Bank Rate also unchanged.

The MPC reiterated its commitment to a neutral monetary policy stance, focused on achieving a durable alignment of inflation with the target while supporting growth. Das highlighted that system liquidity benefited from higher government spending during October and November, even amid increased currency circulation during the festive season and capital outflows.

The RBI reaffirmed its commitment to nimble liquidity management to ensure market stability and sustained economic growth, signaling readiness to adapt as necessary to changing economic dynamics.

To address potential liquidity stress, the Reserve Bank of India (RBI) announced a 50-basis-point reduction in the Cash Reserve Ratio (CRR) on Friday, bringing it down to 4%. The move is set to release ?1.16 lakh crore into the banking system, offering relief amid tightening liquidity conditions.

RBI Governor Shaktikanta Das stated that while system liquidity remains in surplus, factors such as tax outflows, increased currency circulation, and volatile capital flows could strain liquidity in the months ahead. To counter this, the CRR cut will be implemented in two phases of 25 basis points each, effective from December 14 and December 28, 2024. This adjustment restores the CRR to pre-tightening levels seen before April 2022.

Das emphasized that this measure aligns with the RBI's neutral policy stance, aimed at maintaining orderly money market conditions and ensuring adequate liquidity for the economy's productive needs. The decision also underscores the RBI's proactive approach to liquidity management as it navigates evolving economic conditions.

Despite the CRR reduction, the Monetary Policy Committee (MPC) has opted to maintain the repo rate at 6.5% for the 11th consecutive time. The standing deposit facility (SDF) rate and marginal standing facility (MSF) rate remain at 6.25% and 6.75%, respectively, with the Bank Rate also unchanged.

The MPC reiterated its commitment to a neutral monetary policy stance, focused on achieving a durable alignment of inflation with the target while supporting growth. Das highlighted that system liquidity benefited from higher government spending during October and November, even amid increased currency circulation during the festive season and capital outflows.

The RBI reaffirmed its commitment to nimble liquidity management to ensure market stability and sustained economic growth, signaling readiness to adapt as necessary to changing economic dynamics.