RBI MPC meeting December 2024: Investors will keep a close eye on the central bank’s repo rate and CRR as well as other liquidity measures, apart from its latest FY25 estimates on inflation and GDP growth.
RBI’s MPC meeting December 2024: Most analysts expect the key repo rate to remain unchanged at 6.5% for the 11th consecutive time.
RBI MPC Meeting December 2024: Even as the three-day RBI MPC meeting ends on Friday, RBI Governor Shaktikanta Das will announce the repo rate decision at 10 am, apart from his projections for the country’s economy. While most analysts expect the key repo rate to remain unchanged at 6.5 percent for the 11th consecutive time, a few experts see even a 25 basis points (bps) rise. However, almost all analysts believe that the monetary policy review will lead to some easing in the financial market, including a reduction in the Cash Reserve Ratio (CRR) or an announcement on Open Market Operations (OMOs).
RBI Governor Shaktikanta Das will announce the RBI IMPC decision at 10 am on Friday.
The most important thing to watch in the bi-monthly monetary policy December 2024 will be the RBI MPC’s decision and stance on the repo rate. Investors will closely watch any changes in liquidity conditions such as a reduction in the CRR, as well as the central bank’s outlook on the economy.
RBI decision on interest rates
Currently, the repo rate is 6.50 percent, which remains unchanged from February 2023. CRR remains at 4.5 percent, while statutory liquidity ratio stands at 18 percent.
Repo rate is the interest rate at which RBI lends money to banks to meet short-term needs. CRR is the percentage of a bank’s total deposits that the RBI must hold in cash, while SLR is the portion of the bank’s net demand and time liabilities (deposits) that must be in gold, cash, or government form. Approved Securities
A cut in repo rate, CRR and SLR increases liquidity in the market. While a cut in the repo rate makes borrowing cheaper, any cut in CRR and SLR releases additional funds for banks to lend. While the repo rate is decided by voting in the six-member MPC meeting, the CRR and SLR are at the discretion of the RBI.
Most analysts expect RBI policy to remain unchanged on Friday. However, Nomura expects a decline of 25 basis points.
Globally, the U.S. Federal Reserve, the Bank of England, and the European Central Bank have already started cycles of internet rate cuts.
Some of the things that should be taken care of in the policy are:
Inflation Estimates: This is outside the tolerance zone of RBI.
The RBI is mandated to keep CPI inflation within a range of 2-6 percent. However, currently, inflation is above the RBI’s comfort zone. In October 2024, the latest month for which inflation data is available, retail or CPI inflation hit a 14-month high of 6.21 percent. This was the third consecutive month of inflation.
Currently, the RBI has pegged inflation at 4.5 percent for FY25. According to analysts, the central bank may have to revise it up to 4.8 percent.
Importantly, any cut in interest rates by the RBI generally increases inflation as cheap credit leads to more borrowing, thereby increasing consumption.
GDP Projection: Growth is multi-quarter low.
Although the RBI is not directly tasked with promoting economic growth, its interest rate decisions significantly affect economic activity. Low interest rates boost economic activity on the back of cheap credit, and vice versa.
Hence, the RBI’s decision on Friday will have an impact on economic growth.
Currently, according to the latest RBI bulletin, the central bank estimates GDP growth of 6.8 percent for FY25, down from the 7 percent growth estimated in the October 2024 policy.
The latest GDP growth estimates will be closely watched on Friday as it follows a GDP print for the September 2024 quarter at a seven-quarter low of 5.4 percent.
Additional steps
Apart from these, RBI can also announce additional measures regarding anything under its domain. Digital payment systems like UPI, regulatory changes for financial institutions etc come under the purview of RBI.