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RBI MPC Meeting December 2024: Investors will closely watch the central bank’s decision on repo rate and CRR as well as other liquidity measures, apart from its latest FY25 projections on inflation and GDP growth.
RBI MPC Meeting December 2024: Most analysts expect a status quo on the key repo rate at 6.5 per cent for the 11th time in a row.
RBI MPC Meeting December 2024: Even as the RBI MPC’s three-day meeting concludes on Friday, RBI Governor Shaktikanta Das will announce the repo rate decision at 10 am, apart from his projections for the country’s economy. Though most analysts expect a status quo on the key repo rate at 6.5 per cent for the 11th time in a row, a few experts also see a 25-basis-points (bps). However, almost all analysts feel that there will be some liquidity easing in the financial market in the monetary policy review, including a cut in the cash reserve ratio (CRR) or an announcement on open market operations (OMOs).
RBI Governor Shaktikanta Das will announce the RBI MPC decision at 10 am on Friday.
The most important thing to watch out for in the bi-monthly monetary policy December 2024 will be the RBI MPC’s decision on the repo rate and its stance. Investors will also closely watch any changes in liquidity conditions like cutting CRR, as well as the central bank’s outlook on the economy.
RBI’s Decision On Interest Rates
Currently, the repo rate stands at 6.50 per cent, which has stayed unchanged since February 2023. CRR remains at 4.5 per cent, while the statutory liquidity ratio stands at 18 per cent.
The repo rate is the interest rate at which the RBI lends money to banks to meet short-term needs. CRR is the percentage of a bank’s total deposits that must be kept in cash with the RBI, whereas SLR is the portion of a bank’s net demand and time liabilities (deposits) that must be held in the form of gold, cash, or government-approved securities.
A cut in repo rate, CRR and SLR increases liquidity in the market. While a reduction in the repo rate makes loans cheaper, any cut in CRR and SLR releases additional funds for banks to lend. Though the repo rate is decided by voting in the six-member MPC meeting, CRR and SLR are at the RBI’s discretion.
Most analysts expect a status quo on the RBI policy on Friday. However, Nomura expects a 25 basis points cut.
Globally, the US Federal Reserve, Bank of England, and European Central Bank have already started internet rate cut cycles.
Here are the other key things to watch out for in the policy:
Inflation Projections: It Remains Out Of RBI’s Tolerance Zone
The RBI is mandated to keep the CPI inflation within the range of 2-6 per cent. However, currently, the inflation remains above the RBI’s comfort zone. In October 2024, which is the latest month for which inflation data is available, the retail or CPI inflation jumped to a 14-month high of 6.21 per cent. It was the third consecutive month to witness a jump in inflation.
Currently, the RBI projects the inflation at 4.5 per cent for FY25. According to analysts, the central bank may have to revise it upwards at 4.8 per cent.
Importantly, any cuts in interest rates by the RBI typically push up inflation as cheaper loans lead to higher loans offtake, thus raising consumption.
GDP Projection: Growth Remains Multi-Quarter Low
Though the RBI is not directly mandated to boost economic growth, its interest rate decisions significantly impact economic activities. Lower interest rates boost economic activities on the back of cheaper loans, and vice-versa.
So, the RBI’s decision on Friday will have an implication on the economic growth.
Currently, according to the latest RBI Bulletin, the central bank projects 6.8 per cent GDP growth for FY25, which is lower than the 7 per cent growth estimated in the October 2024 policy.
The latest GDP growth projections will be closely watched on Friday as it comes after the latest September 2024 quarter GDP print of a seven-quarter low of 5.4 per cent.
Additional Measures
Apart from these, the RBI might also announce additional measures regarding anything under its domain. Digital payment systems like UPI, regulatory changes for financial institutions, etc come under the RBI’s purview.
