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RBI MPC Meeting Highlights: Apart from keeping repo rate unchanged and cutting CRR, the RBI has raised collateral-free agriculture loans limit for farmers to Rs 2 lakh and allowed small finance banks for UPI credit line.
RBI MPC Meeting December 2024: CRR Reduced To 4%
RBI Policy Today: In line with expectations, the Reserve Bank of India (RBI) on Friday announced a status quo on the repo rate at 6.5 per cent, while keeping the stance as ‘neutral’. This is the 11th time that the RBI MPC has kept the repo rate unchanged since February 2023. The RBI revised downward the GDP growth forecast to 6.6 per cent from 7.2 per cent earlier for the current financial year 2024-25, and raised the inflation projection from 4.5 per cent to 4.8 per cent.
Presenting the latest bi-monthly monetary policy statement, Das on Friday said, “The MPC believes that only with durable price stability can strong foundations be secured for high growth. The MPC remains committed to restoring the inflation growth balance in the overall interest of the economy.”
RBI MPC December 2024: Repo, Reverse Repo, CRR, Bank Rate
While the RBI MPC kept the repo rate unchanged at 6.5 per cent, the central bank reduced the cash reserve ratio (CRR) by 50 basis points to 4 per cent. It will free up an additional Rs 1.16 lakh crore in the banking system, providing much-needed relief to lenders.
A basis point is a 100th of a percentage point. CRR is the percentage of a bank’s total deposits that must be kept in cash with the RBI.
Apart from this, reverse repo rate, bank rate, SDF and MSF remain unchanged at 3.35 per cent, 6.75 per cent, 6.25 per cent, and 6.75 per cent.
The repo rate is the rate at which the RBI lends money to the commercial banks, whereas the reverse repo rate on commercial banks’ deposits with the RBI.
FY25 GDP Growth Forecast Lowered To 6.6%
The RBI on Friday revised downwards the GDP growth projection for the current financial year 2024-25 to 6.6 per cent, compared with 7.2 per cent earlier. It comes after the latest Q2 GDP growth slowed to a seven-quarter low of 5.4 per cent.
“Growth in real GDP in Q2 at 5.4 per cent turned out to be much lower than
anticipated. This decline in growth was led mainly by a substantial deceleration in industrial growth,” Das said.
On the outlook, the RBI governor said high-frequency indicators available so far suggest that the slowdown in domestic economic activity bottomed out in Q2:2024-25, and has since recovered, aided by strong festive demand and pick up in rural activities.
“Notwithstanding the recent aberration in the growth and inflation trajectories, the economy continues its journey on a sustained and balanced path towards progress,” Das said.
The RBI projects the real GDP growth for 2024-25 at 6.6 per cent, with Q3 at 6.8 per cent; and Q4 at 7.2 per cent. Real GDP growth for Q1:2025-26 is projected at 6.9 per cent; and Q2 at 7.3 per cent
FY25 Inflation Projection Raise To 4.8%
The RBI raised the inflation forecast for FY25 to 4.8 per cent as against 4.5 per cent earlier.
“Inflation increased sharply in September and October 202421 led by an unanticipated increase in food prices… In the near term, despite some softening, lingering food price pressures are likely to keep headline inflation elevated in Q3,” Das said in the policy statement.
The central bank forecasts CPI inflation for 2024-25 at 4.8 per cent, with Q3 at 5.7 per cent; and Q4 at 4.5 per cent. CPI inflation for Q1:2025-26 is projected at 4.6 per cent; and Q2 at 4.0 per cent. The risks are evenly balanced.
Additional Measures:
UPI: Small Finance Banks Allowed To Sanction Credit Lines
The RBI on Friday allowed small finance banks to extend credit lines through UPI. Credit line on UPI was launched in September 2023 and was made available through scheduled commercial banks (SCBs).
“It has now been decided to permit small finance banks also to extend pre-sanctioned credit lines through the UPI. This will further deepen financial inclusion and enhance formal credit, particularly for ‘new to credit’ customers,” said Das.
Collateral-Free Agriculture Loan Limit Hiked To Rs 2 Lakh
In a major move to support farmers, the Reserve Bank of India of Friday raised the limit for collateral-free agriculture loans from Rs 1.6 lakh to Rs 2 lakh per borrower. The move will enhance credit availability for small and marginal farmers.
“Taking into account the rise in agricultural input costs and overall inflation, it has been decided to increase the limit for collateral-free agriculture loans from Rs 1.6 lakh to Rs 2 lakh per borrower. This will further enhance credit availability for small and marginal farmers,” Das said.
The limit for collateral-free agriculture loans was last revised in 2019.
FX-Retail Platform To Be Linked With NPCI’s Bharat Connect Platform
The RBI on Friday decided to link FX-Retail platform with the Bharat Connect platform of the NPCI.
The FX-Retail platform was launched in 2019.
“This would enable users to transact on the FX-Retail platform through mobile apps of banks and non-bank payment system providers. This will expand the reach of FX-Retail platform, enhance user experience and promote fairness and transparency in pricing with adequate safeguards,” Shaktikanta Das said.
RBI Introduces Secured Overnight Rupee Rate
The RBI introduced the Secured Overnight Rupee Rate (SORR), a new benchmark based on all secured money market transactions, including overnight repo rate and TREPS.
It is aimed at further developing the interest rate derivatives market in India and improving the credibility of interest rate benchmarks, the RBI governor said.
Connect 2 Regulate
The RBI announced to roll out a new section on its website ‘Connect 2 Regulate’ for stakeholders to share their ideas and inputs on specific topics.
RBI’s Podcast Facility
The Reserve Bank said it proposes to add ‘podcasts’ to its communication toolkit for wider dissemination of information.
RBI’s AI Platform
The RBI decided to set up a committee comprising of experts from diverse fields to recommend a Framework for Responsible and Ethical Enablement of AI (FREE-AI) in the financial sector.
The RBI said the financial sector landscape is witnessing rapid transformation, enabled by technologies such as AI, tokenisation, Cloud Computing, etc.
