What does RBI's policy decision mean for the markets? Experts weigh

RBI maintains the status quo on repo rate but cuts CRR by 50 bps what does it mean for the markets? Experts decode

The Reserve Bank of India (RBI) today, December 6, in its policy decision kept the repo rate unchanged at 6.5 per cent but cut the cash reserve ratio (CRR) by 50 basis points (bps) to 4 per cent. The CRR is the percentage of a bank's total deposits that it is required to maintain in liquid cash with the RBI as a reserve.

 

The RBI Monetary Policy Committee (MPC) also lowered the economic growth forecast to 6.6 per cent for FY25 from the earlier projection of 7.2 per cent and revised India's Consumer Price Inflation (CPI) forecast for financial year 2025 to 4.8 per cent from 4.5 per cent earlier. However, the MPC decided to maintain its 'Neutral' stance, with a majority of four members voting to maintain the stance.

 

 

Post the policy decision, the BSE Sensex fell 172.92 points or 0.21 per cent at 81,592.94. However, it rebounded later and ended flat. Track LIVE Updates

 

Around 12:21 PM, the BSE Sensex and NSE Nifty were trading flat. Rate sensitives were trading mixed with Nifty Bank flat with a positive bias, Nifty Auto up 0.58 per cent, and Nifty Realty down 0.34 per cent.

 

Experts are of the view that the decision is good from the market's perspective and they largely anticipate rate cuts early next year.

 

Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services

Monetary policy has delivered exactly what the economy and markets need in the present context. The governor’s emphasis on price stability is appropriate given the elevated level of inflation. The decision to cut the CRR by 50 bps facilitating the injection of Rs 1.16 trillion of liquidity into the system will ease the liquidity constraints and more importantly reduce the banks’ cost of funds. From the market perspective, this is an excellent policy response. Banking stocks will remain resilient.

 

Divam Sharma, Founder and Fund Manager at Green Portfolio

Barring some of the uncertainties that could evolve in macros, we believe that the financial system is stable, RBI decisions are proactive and responsive and our economy is in a comfortable zone. The markets should continue to benefit over the near term. FPI inflows have been challenging and steps to support growth in FPI flows, especially from the NRI's will have a positive impact on the markets. We believe that as the transition happens in the US, the FPIs should increase flows to Indian markets.

 

Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Shares and Stock Brokers

The cut in gross domestic product (GDP) forecasts for FY25 by 60 bps was confusing given the expectations of material improvement in economic activity in the second half. We continue to hold our full-year projections for FY25 at 7 per cent. If we go by RBI's forecasts for improvement in economic momentum with a higher Consumer Price Index (CPI) forecast for the full year along with a CRR cut intended to ease liquidity and thus lower the money market rates, the need for a Feb'25 cut is lower and expect RBI to enter the easing cycle from April'25

 

Aditi Nayar, chief economist & head research outreach, ICRA Ltd

The MPC's decision to keep the repo rate unchanged was along expected lines, with the CPI inflation exceeding the MPC's upper threshold of 6.0 per cent. However, the cut in the CRR by 50 bps would help support growth, after the sharp downward revision in the forecast for FY2025. If the CPI inflation retraces to below 5 per cent by the December 2024 print, the likelihood of a repo cut in Feb 2025 will rise sharply.

 

Suresh Darak, Founder, Bondbazaar

As expected, RBI has held the repo rate despite lower GDP growth because of higher inflation of 6.21 per cent in October, the recent weakening of the rupee against the dollar to 84.7, along with the need to boost the overall savings rate in the economy. Bond markets had largely priced in a no-rate change scenario with minor movements in the benchmark 10-year G-Sec yield. Going ahead if inflation cools down, we may see a rate cut early next year to prop up the economy and boost GDP growth.