RBI holds rate, cuts CRR to inject more liquidity into system

The Reserve Bank of India's Monetary Policy Committee on Friday left both the policy rate as well as its stance unchanged, although it responded to last week's GDP data that showed the economy expanding at the slowest rate in seven quarters for the three months ended September by moving to inject more liquidity (money) into the system.

- Roshan Kishore

MPC, which also overestimated growth in the first and second quarters of this financial year, downgraded its growth expectations for the year, even as it upped its estimate for inflation -- the reason why it did not cut the interest rate.

The policy rate remains at 6.5%, unchanged since February 2023, and the absence of a reduction means there is no relief for corporate and retail borrowers, including consumers with home loans. Some economists believe rising mortgage payments are behind low demand.

The growth-inflation balance in the Indian economy has turned worse, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) noted in its last meeting for the calendar year on Friday.

Economic growth and inflation projections for fiscal year 2024-25 now stand revised at 6.6% and 4.8%, respectively, compared to 7.2% and 4.5% in the committee's October resolution. MPC decided against any knee-jerk reaction by cutting interest rates before inflation is aligned to its 4% target. It described the status quo on interest rates as "appropriate and essential". For now, the central bank expects to support growth via the liquidity route.

"A growth slowdown - if it lingers beyond a point - may need policy support," governor Shaktikanta Das said in his statement issued along with the MPC resolution.