RBI may cut CRR instead of cutting repo rate in monetary policy- Expert
Mumbai Mumbai: During the Reserve Bank of India’s (RBI) monetary policy committee (MPC) meeting, experts have suggested that the central bank may cut the cash reserve ratio (CRR) for banks instead of cutting the policy repo rate. The policy outcome is to be announced on Friday, December 6. The MPC faces the challenging task of balancing the need to stimulate economic growth amid a slowing economy while keeping inflation under control. Economists expect the committee to maintain status quo on the policy repo rate, but indicate that a modest reduction in the CRR could help ensure adequate liquidity in the financial system. M Govind Rao, member of the 14th Finance Commission and former director of the National Institute of Public Finance and Policy, said the MPC has a tough task ahead of it to boost growth in the face of a slowing economy while controlling inflation.
“They are expected to maintain status quo on the policy rate, but may cut the CRR modestly to ensure adequate liquidity,” he said. The decision is not straightforward. On one hand, the economy is witnessing a “slowdown”, making a strong case for monetary easing. On the other, inflation, especially headline inflation, remains high, making the decision more complex. Ankita Pathak, chief macro and global strategist at Ionic Wealth, emphasised the urgency of monetary support, explaining that fiscal policy is likely to tighten from FY26. “The economy is slowing down much faster than anticipated, and inflation concerns are driven primarily by food prices, which have recently shown signs of easing in the mandis,” she said.
Industry representatives want the central bank to cut the repo rate by at least 25 basis points. Chandrajit Banerjee, director general of the Confederation of Indian Industry (CII), urged the RBI to cut the repo rate by 25 basis points in the upcoming policy announcement. Banerjee also wants additional liquidity-increasing measures, such as conducting open market operations (OMOs) and reducing both the CRR and statutory liquidity ratio (SLR). “The Reserve Bank of India (RBI) should cut the key repo rate by 25 basis points in its upcoming monetary policy meeting on December 6, along with a number of liquidity-boosting measures.” The latter has been advocated in the form of conducting open market operations (OMOs) and cutting CRR and SLR.
