Mumbai: The Reserve Bank of India (RBI) on Friday slashed banks’ cash reserve ratio (CRR) by 0.5 percent to make more funds available for lending and spur economic growth. However, the key policy repo rate, which is set at 6.5 percent, remained unchanged to monitor inflation.
The CRR has been reduced from 4.5 percent to 4 percent. This is the first time since March 2020 that the CRR has been cut. The CRR is the proportion of deposits that banks have to set aside as idle cash in the system.
The CRR cut will infuse Rs 1.16 lakh crore into the banking system, thereby increasing the availability of funds for lending. This influx of funds is expected to bring down market interest rates, making borrowing cheaper for businesses and individuals.
The monetary policy decision maintains a delicate balance between controlling inflation and pushing up the growth rate in a slowing economy.
RBI Governor Shaktikanta Das emphasised that the decision had been taken by the monetary policy committee with a 4:2 majority after a meticulous assessment of the macroeconomic outlook, reflecting the RBI’s cautious approach.
He said, “India’s growth story is still intact. Inflation is on the declining path, but we cannot overlook the significant risks in the outlook. This risk cannot be underestimated.”
The RBI Governor was optimistic about the economy’s outlook, assuring that “the balance between inflation and growth is well poised, reflecting the RBI’s commitment to maintaining a stable economic outlook.
He also noted that the country’s external sector is stable, and foreign exchange reserves have reached a new peak.
Das said that the RBI would be nimble and flexible in managing the economy. The monetary policy action gives the monetary policy committee flexibility and optionality to keep in sync with the evolving economic outlook.
Price stability is important to people because it impacts their purchasing power, said RBI Governor Shaktikanta Das, adding that ensuring “durable” price stability is critical to ensuring high economic growth.
Policy support may be needed if the growth slowdown “lingers”, Das said.
For now, the central bank sees economic growth as resilient, Das said. Notwithstanding the recent aberrations in growth and inflation, domestic conditions are on a balanced path, he added.
Das also stated that complacency was not appropriate, especially given current geopolitical conditions that trigger uncertainty in financial and commodity markets.
—IANS
