RBI reduces CRR by 50bps and Cuts GDP growth rate to 6.6% for FY 25

Announcing the fifth bi-monthly monetary policy of the financial year 2024-25 on 6 December 2024, the  Reserve Bank of India (RBI) governor, Shaktikanta Das, announced a cut in the Cash Reserve Ratio (CRR) by 50 basis points or 0.50% and revised downward the forecast for the Indian economy’s growth rate for the fiscal year 2024-25 to 6.6 per cent. 

For the eleventh consecutive time, the RBI's Monetary Policy Committee voted by a 4:2 majority to keep the policy repo rate unchanged at 6.5%.

The next meeting of the Monetary Policy Committee will be held on 5-7 February 2025.

CRR to be Reduced in two-phase 

The Cash Reserve Ratio (CRR) will be reduced by 50 basis points or 0.50 % in two phases.

In the first phase, the CRR will be reduced to 4.25 % on 14 December 2024.

In the second phase, it will be reduced by 25 basis points or 0.25 % to 4 % on 28 December 2024.

According to the RBI, the 0.50% cut in the CRR is expected to release around Rs 1.16 lakh crore into the banking system.

CRR is the percentage of the bank’s Net Demand and Time Deposit Liabilities(NDTL), which a bank has to maintain in the form of cash, gold or approved government securities.

Policy rates and Ratios after the fifth bi-monthly monetary policy 2024-25

There have been no changes in the policy rates and ratios except for CRR. They are as follows:

GDP growth forecast for 2024-25  

RBI has revised downward the expected growth rate of the Indian economy for the financial year 2024-25  after a lower-than-expected growth rate of 5.2% in the second quarter (July-September) 2024 

RBI now expects the Indian economy to grow by 6.6 % in 2024-25

In 2023-24, the growth rate was 8.2 per cent.

Policy Initiatives Announced by the RBI Governor 

• Banks can provide a collateral-free agricultural loan of up to Rs 2 lakh per borrower. Earlier, the limit was Rs 1.60 lakh per borrower. This is expected to benefit the small and marginal farmers. 
• Small Finance Banks can extend credit through Unified Payment Interface. Till now only Scheduled Commercial Banks were allowed to offer this facility to their customers.
• However, the Payments Banks and Regional Rural Banks are not allowed to use this facility.

Monetary Policy Committee 

The Monetary Policy Committee was established by the government of India on 29 September 2016 under the provisions of the Reserve Bank of India Act 1934.

• It has six members with RBI governor as the Chairman
• It sets the policy interest rate of the RBI in order to achieve the inflation target set by the government of India. 
• As per the RBI Act, the MPC has to meet at least four times a year.

Also Read: 3 new members appointed to the Monetary Policy Committee of the RBI