Reserve Bank of India Keeps Benchmark Rate Unchanged
Investing.com — The Reserve Bank of India (RBI) kept its benchmark rate unchanged at 6.5% as expected, marking the tenth consecutive meeting at this rate. However, it has cut the cash reserve ratio (CRR) for banks from 4.5% to 4%, in response to a significant slowdown in economic growth.
Economic Outlook
The central bank revised its economic growth outlook down to 6.6% for this fiscal year, from a prior estimate of 7.2%. This adjustment came after the latest gross domestic product (GDP) data indicated a much slower-than-anticipated economic expansion in the September quarter, primarily affected by sluggish manufacturing and persistent inflation.
RBI Governor Shaktikanta Das emphasized that the decision and the bank's neutral stance aim to maintain inflation control, stating, "Only with durable price stability can strong foundations be secured for high growth."
Implications of CRR Cut
While the CRR cut does not directly translate to lower lending rates, it is expected to inject more liquidity into the economy, which could serve as a stimulus for economic activity. Das noted that although GDP showed a downturn, industrial activity is projected to improve in the forthcoming quarter despite being hampered in certain sectors such as oil and cement.
Future Rate Cuts
Recent economic indicators led some investors to speculate on a potential 25 basis point rate cut by the RBI. However, the bank has not indicated any imminent easing of rates. Das mentioned that inflation for fiscal 2025 is forecasted to increase to 4.8%, above the previous 4.5% prediction but still falling within the RBI's target range of 4% to 6%.
He also cautioned that food inflation pressures could persist into the current quarter, likely easing only in the next quarter.
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