RBI's Monetary Policy Changes
In response to economic uncertainties, the Reserve Bank of India (RBI) has taken significant steps to stabilize the Indian financial system.
Monetary Policy Committee (MPC) Decisions
- The MPC reduced the policy repo rate by 50 basis points to 5.5%, exceeding market expectations of a 25 basis point cut.
- The policy aims to frontload policy accommodation to boost economic activities.
- Overall, the policy repo rate has been reduced by a total of 100 basis points in the current cycle.
Cash Reserve Ratio (CRR) Reduction
- The RBI reduced the CRR by 100 basis points to 3%, implemented in four stages.
- This move will inject durable liquidity worth ₹2.5 trillion into the system, enhancing the policy-rate reduction's transmission and reducing banking system costs.
Liquidity Measures
- The RBI has infused liquidity worth ₹9.5 trillion since the start of the year.
- The weighted average call rate (WACR) remains at the lower end of the liquidity adjustment facility corridor, indicating higher actual policy accommodation than suggested by rate cuts.
Policy Stance and Future Outlook
- The MPC changed its stance from "accommodative" to "neutral", indicating future actions may not involve rate cuts.
- The headline inflation rate moderated to 3.2% in April, leading the MPC to revise its yearly inflation projection from 4% to 3.7%.
- Growth projection is maintained at 6.5%, with an emphasis on policy intervention beyond monetary accommodation to achieve a sustainable growth rate above 7%.
In summary, while the RBI has provided significant monetary support, it suggests limited scope for further cuts unless inflation outcomes deviate significantly. The focus is now on sustainable growth beyond monetary measures.
