Mumbai,dec 5
With the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) meeting underway, experts have suggested that the central bank might go for a reduction in Cash Reserve Ratio (CRR) for banks instead of cutting the policy repo rate.The policy outcome is scheduled 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 the status quo on the policy repo rate but indicate that a marginal reduction in CRR could help ensure adequate liquidity in the financial system.M Govind Rao, Member, 14th Finance Commission and former Director of the National Institute of Public Finance and Policy said the MPC has a difficult job of propping up growth in the wake of slowing economy while controlling inflation. “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.This decision is not straightforward. On one hand, the economy is witnessing a “slowdown” creating a strong case for monetary easing. On the other, inflation, particularly headline inflation, remains elevated, making the decision more complex.
Ankita Pathak, Chief Macro and Global Strategist at Ionic Wealth, emphasized the urgency of monetary support, explaining that fiscal policy is likely to tighten from FY26 onwards. “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,” she said.
Industry representatives want the central bank to cut repo rate by at least 25 basis points. Chandranjit Banerjee, Director General of the Confederation of Indian Industry (CII), urged the RBI to reduce the repo rate by 25 basis points in the upcoming policy announcement.
