Day 36
Economy & BudgetImportant2024-12-06
RBI Keeps Repo Rate Unchanged at 6.5%
In News
What Happened
On December 6, 2024, the Reserve Bank of India's Monetary Policy Committee kept the policy repo rate unchanged at 6.5% for the eleventh consecutive meeting. While keeping a 'neutral' policy stance, the RBI reduced the Cash Reserve Ratio (CRR) by 50 basis points to 4.0% to inject Rs 1.16 lakh crore into the banking system. Additionally, it downgraded India's real GDP growth projection for FY25 from 7.2% to 6.6%.
Why It Matters
Maintaining the repo rate helps the RBI balance inflation control without increasing borrowing costs for consumers and businesses. Simultaneously, reducing the CRR provides banks with more primary liquidity to lend, supporting economic activity amidst a recognized slowdown in recent quarterly growth.
Background
History & Context
The MPC has kept the repo rate steady at 6.5% since February 2023, following a cycle of rate hikes aimed at curbing inflation. In October 2024, the RBI shifted its policy stance from 'withdrawal of accommodation' to 'neutral', giving it flexibility to support growth. The recent moderation in Q2 GDP growth prompted the central bank to utilize liquidity tools like the CRR rather than altering the benchmark interest rate.
What Changed
- ▶
Cash Reserve Ratio (CRR): Decreased from 4.5% to 4.0%, freeing up Rs 1.16 lakh crore of primary liquidity for banks.
- ▶
FY25 GDP Growth Projection: Downgraded from the previous forecast of 7.2% to 6.6% due to lower-than-expected Q2 economic performance.
- ▶
Policy Repo Rate: Remained unchanged at 6.5%, marking the eleventh consecutive meeting with no alteration to the benchmark rate.
Prelims Angle
NCERT Connection
This event directly connects to Class 12 Macroeconomics Chapter 3, Money and Banking. The RBI's use of quantitative tools like the Cash Reserve Ratio (CRR) to inject liquidity and the Repo Rate to manage inflation demonstrates the real-world application of central bank credit control mechanisms.
Practice Questions
Q1
Correct Statement(s)Consider the following statements regarding the Reserve Bank of India's monetary policy decisions in December 2024: 1. The RBI reduced the policy repo rate to 4.0% to inject liquidity into the economy. 2. The Monetary Policy Committee maintained a 'neutral' policy stance. Which of the statements given above is/are correct?