Cash Reserve Ratio Revised To 4%, RBI Cuts Crucial Rate By 50 Basis Points

In his post-Monetary Policy Committee (MPC) meeting address that was held between December 4 and December 6, the RBI governor announced the cut in Cash Reserve Ratio or CRR to 4 per cent, from the previous 4.5 per cent. The central bank brought in a cut of 50 basis points.

RBI Cuts CRR

The Cash Reserve Ratio is the rate, as according to which banks in the country are expected to reserve a certain amount of the cash deposits with bank.

An increase in CRR means affects the ability of commercial banks to lend, as this reduces the availability of resources for the bank to disperse.

On the contrary, a decline in CRR rate means greater availability of resources for banks to disperse, thereby making them liquid.

In his address post the meeting, Das harped on the available liquidity in the banking system. According to Shaktikanta Das, although there is great amount of liquidity in the system, the system might experience some crunch in the time to come.

RBI Retains Repo Rate

The country's central bank after its 52nd MPC meeting decided to retain the interest rate or repo rate of the country at 6.50 per cent. This is 11th straight-time that the RBI has retained the interest rate. The repo rate has remained rate the same since February 2023.

The RBI governor, given the current economic circumstances, focused on the ability of the Indian economy to resiliently fight in the face of global uncertainties.

However, the dip in the country's GDP growth rate (as of Q2 FY25) to 5.4 per cent and the country's rising inflation rate has made the RBI cautious.

This caution has led it to focus on the aspect of price stability. Maintaining price stability appeared as the key aspect of the governor's speech, as it is crucial for consumption and business as well.