Mumbai (Maharashtra): As the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) convenes for its crucial meeting, experts predict that the central bank may opt to reduce the Cash Reserve Ratio (CRR) for banks, rather than cutting the policy repo rate. The policy outcome is expected to be announced on December 6.
Key Considerations for the RBI:
- Balancing Growth and Inflation: The RBI faces the challenge of stimulating economic growth in the face of a slowing economy, while also keeping inflation under control.
- Expectations on Policy Actions: Economists generally expect the MPC to maintain the status quo on the policy repo rate, but foresee a potential marginal reduction in CRR, which could ensure better liquidity within the financial system.
Economic Slowdown vs Inflation Concerns:
- Economic Slowing: India is witnessing a “slowdown” in growth, creating a strong argument for monetary easing.
- Inflation: However, inflation, especially headline inflation, remains high, complicating the RBI’s decision-making process.
Expert Views on Possible Actions:
- M Govind Rao, a member of the 14th Finance Commission, stated that while the RBI is expected to hold the policy repo rate steady, a reduction in CRR could be a way to provide liquidity without causing further inflationary pressures.
- Ankita Pathak, Chief Macro and Global Strategist at Ionic Wealth, emphasized that monetary policy support is crucial, particularly as fiscal policy is likely to tighten in the coming years. She noted that food price inflation is a significant concern, but there are signs of easing in mandis.
Industry Expectations:
- Chandranjit Banerjee, Director General of the Confederation of Indian Industry (CII), called for a 25 basis point cut in the repo rate and additional liquidity measures like Open Market Operations (OMOs), and reductions in both the CRR and Statutory Liquidity Ratio (SLR).
What’s at Stake?
- Repo Rate vs CRR: While a repo rate cut could provide a more direct stimulus to economic growth, a CRR reduction would offer a more cautious approach to enhancing liquidity without necessarily stoking inflation.
The decision on December 6 will be closely scrutinized, as it will determine the RBI’s stance on supporting economic recovery while managing inflationary pressures. The market is eagerly awaiting clarity on the central bank’s next steps.