Mumbai, December 5: As the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) deliberates in its ongoing meeting, experts suggest the central bank may opt for a Cash Reserve Ratio (CRR) cut to enhance liquidity rather than reducing the policy repo rate.
The much-anticipated policy announcement is scheduled for Friday, December 6. The MPC faces the dual challenge of addressing a slowing economy while maintaining control over inflation, making this decision particularly critical.
Expert Opinions on Monetary Policy
Economists widely expect the MPC to hold the policy repo rate steady but anticipate a marginal reduction in CRR to ensure adequate liquidity in the financial system.
M Govind Rao, a member of the 14th Finance Commission and former Director of the National Institute of Public Finance and Policy, highlighted the dilemma the MPC faces. “The expectation is that they will continue the status quo on the policy rate but may reduce the CRR marginally to ensure adequate liquidity,” he said.
The economic slowdown is creating a strong case for monetary easing. However, persistently high headline inflation complicates matters, as any aggressive moves could risk stoking price increases.
Industry and Market Perspectives
Ankita Pathak, Chief Macro and Global Strategist at Ionic Wealth, underlined the need for immediate monetary support. She noted, “The economy is slowing much faster than anticipated, and inflation concerns are primarily driven by food prices, which have shown signs of easing at mandis recently.”
Representatives from the industry have called for bold measures. Chandranjit Banerjee, Director General of the Confederation of Indian Industry (CII), urged the RBI to reduce the repo rate by 25 basis points while also adopting liquidity-boosting measures such as Open Market Operations (OMOs), and reductions in CRR and Statutory Liquidity Ratio (SLR).
“The Reserve Bank of India should cut the key repo rate by 25 basis points in its forthcoming monetary policy meeting scheduled for December 6, apart from taking a host of liquidity-enhancing measures,” Banerjee said.
Balancing Growth and Inflation
The MPC’s decision comes at a pivotal time. While a repo rate cut could provide a direct boost to economic growth, a CRR reduction is seen as a cautious move to infuse liquidity into the system without exacerbating inflationary pressures.
Pathak noted that fiscal policy is expected to tighten in the next financial year, adding urgency to the need for monetary easing.
Market Expectations
The financial sector and markets are eagerly awaiting clarity on the RBI's stance. A CRR cut could signal a calculated approach by the central bank to support the slowing economy while avoiding risks of further inflation.
All eyes are now on December 6, as the MPC’s decision will shape the economic outlook and offer insight into how the RBI plans to balance growth and inflation challenges in the months ahead.
