• Notification Date: 07-12-2024
• Notification No: N/A

RBI Keeps Interest Rates Steady, Cuts Cash Reserve Ratio Amid Slowing Economic Growth

The Reserve Bank of India (RBI) has decided to keep its key interest rate unchanged at 6.5% on Friday, marking the tenth consecutive meeting with no changes. However, to support the economy, the RBI has lowered the Cash Reserve Ratio (CRR) for banks from 4.5% to 4%. This reduction means banks will now have more money to lend, which could proactively help in boosting economic activity.

The Governor of RBI, Shaktikanta Das, explained that the primary focus of this decision is to control inflation. He emphasized that price stability is crucial for long-term economic growth. While the CRR change may not directly lower loan rates, it will provide banks with greater liquidity, potentially motivating economic growth and increased lending.

The RBI also updated its economic outlook, cutting its growth forecast for this year to 6.6%, down from 7.2%. This adjustment follows data showing slower-than-expected growth in India’s economy during the last quarter, primarily due to high inflation and weak manufacturing. Despite this slowdown, Governor Das expressed optimism that the economy could retrieve momentum in the coming months.

Inflation remains a significant concern, with rising food prices driving up overall inflation. The RBI now projects inflation for the next financial year to be 4.8%, a slight increase from its earlier estimate of 4.5%. While inflation is still within the RBI’s target range of 4% to 6%, some investors had anticipated an interest rate cut to address slowing economic growth.

For now, the RBI has decided to hold off on making any critical changes. The central bank may consider reducing rates in 2025, but only if inflation continues to fall.