RBI MPC Outcome December 2024

Mr. Pradeep Aggarwal, Founder & Chairman, Signature Global (India) Ltd

“The Apex Bank’s decision to maintain the repo rate at 6.5% while reducing cash reserve requirement by 50 basis points, reflects a balanced and prudent approach to sustaining economic stability while fostering growth. This continuity provides a stable environment for the real estate sector, enabling developers to plan with confidence and homebuyers to benefit from favorable borrowing costs.

However, a rate cut in the future could infuse much-needed liquidity into the real estate sector, accelerating growth and enhancing accessibility for buyers. As India continues to experience robust economic activity, this stable monetary stance will act as a catalyst for long-term growth and investment across industries.”

Mr. Aman Sarin, Director & Chief Executive Officer, Anant Raj Limited

The recent RBI’s monetary policy is indeed a Great step to further encourage the Bullish Indian markets in all segments . While the central bank kept the repo rate unchanged, it decided to reduce the Cash Reserve Ratio (CRR) that banks are required to maintain. This move will free up additional funds for banks, enabling increased lending to both retail and institutional borrowers.

A lower CRR also reduces banks’ costs, potentially leading to a decrease in interest rates. The housing market, particularly the luxury segment, continues to exhibit strong demand, and this reduction in CRR is expected to further boost momentum. With a growing economy and a rising preference for luxury real estate projects, demand in this segment is likely to remain robust.

Mr. Raoul Kapoor, Co-CEO, Andromeda Sales and Distribution Pvt Ltd

The central bank has kept the repo rate unchanged for the 11th consecutive time since February 2023. However, the good news is the reduction of the Cash Reserve Ratio (CRR) from 4.5% to 4%, reflecting the RBI’s careful approach to balancing mixed economic signals. While inflation remains above the comfort zone, the RBI continues to prioritize price stability alongside economic growth.

Although the repo rate—the rate at which the RBI lends to commercial banks—remains unchanged, the decision to cut the CRR is a welcome move that benefits borrowers. CRR represents the percentage of a bank’s total deposits that must be maintained as reserves with the RBI in cash form, ensuring liquidity and stability in the banking system. A higher CRR means less money available for banks to lend, reducing liquidity, whereas a lower CRR increases lending capacity and boosts liquidity.

By reducing the CRR from 4.5% to 4%, the RBI has freed up additional funds in the banking system, enabling banks to lend more. This move is expected to result in lower lending rates, making home and personal loans more affordable for borrowers. Reduced borrowing costs can lighten Equated Monthly Installments (EMIs), encourage credit uptake, and stimulate sectors such as housing and small businesses, thereby supporting economic growth while easing financial burdens on borrowers.

Mr. Ashwani Dhanawat, Executive Director and Chief Investment Officer, Shriram General Insurance Company.

In its 52nd meeting, the RBI’s Monetary Policy Committee opted to maintain the status quo on key policy rates, keeping the repo rate at 6.50%, while implementing a 50-bps cut in the CRR to 4%. The reduction in the CRR is a targeted response to address ongoing liquidity tightness, providing banks with additional funds to support credit growth and economic activity. With inflation projections for FY25 revised to 4.8%, the committee’s neutral stance reflects a cautious approach in balancing persistent inflationary pressures with the need to foster sustainable growth. While challenges on the consumption and investment fronts remain, the policy adjustments underscore the RBI’s focus on maintaining economic stability while ensuring adequate liquidity in the system.

Mr. Umesh Revankar, Executive Vice Chairman, Shriram Finance –

“The RBI has sounded a cautious optimistic note in its latest monetary policy committee meeting – while it kept the repo rate at status quo, it acknowledged the evolving economic landscape, which is characterized not only by growth but also inflationary pressures. The decision marks a policy that’s trying to balance a fine equilibrium between a commitment to the support of economic recovery and the prevention of price instability.

The Indian economy has so far been resilient, but the persistence of inflationary pressures largely due to food prices remain a cause for concern. The RBI’s decision to continue to closely monitor inflation dynamics reflects the continued importance attributed to price stability.

The central bank has focused on financial stability and taken proactive steps to address emerging risks. The focus on strengthening the banking sector, promoting digital innovation, and fostering a robust financial ecosystem reflects the RBI’s forward-looking approach.

In a word, this monetary policy decision showcase that it is prepared to respond to changing economic conditions. Through a flexible and data-driven approach, the RBI would attempt to balance the need to stimulate growth with that of safeguarding price stability.”

Mr. Kishore Lodha, Chief Financial Officer, UGRO Capital

The latest monetary policy announcement comes against the backdrop of several global and domestic developments. The U.S. election results are likely to have a mixed impact on the global economy. On the international front, the Federal Reserve’s decision to reduce interest rates is noteworthy, while domestically, the rupee’s rapid depreciation and Q2 GDP numbers falling below expectations have raised concerns. Additionally, high inflation, particularly in food prices, continues to limit the scope for immediate rate cuts.

The 50 bps reduction in the Cash Reserve Ratio (CRR) is a positive and timely move, as it will inject much-needed liquidity into the financial system and support economic recovery. However, for further monetary easing, controlling inflation remains crucial. If inflationary pressures ease in the coming months, we may expect rate cuts in the next 1–2 Monetary Policy Committee (MPC) meetings. RBI has to walk a tightrope between preventing further slowdown in GDP growth, slide in currency and controlling inflation.

Mr Ashwin Chadha, CEO, India Sotheby’s International Realty

“RBI’s decision to keep the repo rate unchanged is a balanced step in managing inflation. For the real estate sector, this stability ensures unchanged mortgage rates and supports the robust demand we’ve been witnessing in housing sales, particularly in the premium and luxury segments. With inflationary pressures under check and buyer confidence holding steady, we remain optimistic about continued momentum in the market, driving long-term growth.”

Mr Vimal Nadar, Head of Research at Colliers India

The RBI, in its last MPC meeting of 2024, has maintained neutral stance keeping repo rate unchanged at 6.5%. The Central Bank taking note of recent aberrations in inflation and growth, has toned down FY 25 projections, revising GDP growth forecast downwards and inflation forecast upwards to 6.6% and 4.8% respectively. Stable repo rate translates into stability in interest rates and augurs well for the Indian real estate sector. Housing sales across major cities of the country are likely to end on a strong note in 2024. Additionally, developer confidence in residential and commercial segments will continue to reflect in healthy launches of residential units and Grade A office completions in the near term.

Shrinivas Rao, FRICS, CEO, Vestian

“As expected, RBI kept the repo rate unchanged at 6.5% for the 11th consecutive time, keeping the investor sentiment stable for real estate. This decision could be attributed to global macroeconomic uncertainty, escalating geopolitical conflicts, and headline inflation in October 2024 crossing the RBI’s upper tolerance limit of six percent. However, the central bank eased the monetary policy by reducing the CRR (Cash Reserve Ratio) by 50 bps to 4% as GDP slowed down to 5.4% in Q2 FY25. This may boost the liquidity in the market and help the GDP grow.”

Mr. Prashant Khandelwal, CEO of Agami Realty, on the current repo rate announcement:

The RBI’s decision to maintain the repo rate at 6.5% is a welcome move for the housing sector, offering much-needed stability that will likely spur demand. This stability will facilitate the real estate market, creating an environment conducive to making housing more affordable and boosting consumer confidence. With an estimated GDP growth of 7% for FY25 and inflation predicted to be around 4.5%, India’s economy will remain relatively insulated from global trends, making the entire probability of investment in the long run favorable. Ultimately, keeping the repo rate unchanged helps ease pressure on the sector, stimulates growth, and increases activity in the industry by providing predictable borrowing costs.

Sakshi Gupta,Principal Economist,HDFC Bank :

The RBI opted for a wait and watch mode in todays’ policy, keeping its stance and policy rate unchanged as expected. The central bank successfully engineered a fine balance in its communication between the need to remain cautious on growth while achieving price stability. The growth forecast was revised down by 60bps to 6.6% while inflation was revised up to 4.8% for 2024-25. We expect GDP growth to average at 6.4% in FY25, with some pick-up in momentum in the second half of the year.

The more substantive announcement in today’s policy came in terms of the support for liquidity conditions through a CRR cut of 50bps, which is estimated to add INR 1.1 lakh crore of liquidity to the system. Banking system liquidity has come under pressure in recent days on account of tax outflows, foreign outflows and higher currency leakage. We expect the RBI to continue providing more “durable” support for liquidity through various measures including longer-duration fine tuning operations, Open Market Operations, and sterilising its FX interventions.

A February rate cut remains on the table, especially if growth momentum fails to pick-up meaningfully over the coming weeks. That said, a rise in global uncertainty and pressure on the rupee or domestic inflation could nudge the RBI to delay any rate cuts to the April policy – preferring prudence and patience over pre-emptive action.

Ms. Madhavi Arora, Lead Economist, Emkay Global Financial Services on RBI MPC 

■ Policy tradeoffs have become even more perplexing with the emerging cracks in the domestic story with the economy stuck in a stagflationary state.

And given the challenges around timing and window of conventional rate cuts, and FX cost of rate cuts (liquidity implication/sterilization cost, and imported inflation amidst fluid global dynamics), a CRR cut of 50bp was the least costly measure for them.

CRR reversal to pre-Covid 4% level implies an infusion of Rs1.2tn at a time when core liquidity may steadily move to a deficit ahead with unsterilized FX intervention and CIC leakages.

■ More importantly, this liquidity infusion could lead to better and immediate transmission of cuts as and when the RBI commences the (shallow) cut cycle amid the limited window. Had there been no policy support, the system liquidity deficit would likely have crossed Rs3-3.5tn by end-Mar’25 as per our estimates.

■ With long-term VRRs turning ineffective, this again was their best bet to infuse long term liquidity, apart from the FX swaps they are conducting (which is skewing the Fwd premia curve, nonethless).

■ Going ahead, while rate cuts would still be a tricky call, we also keep a watch on unconventional measures, specifically, easing regulatory lending norms gradually ahead in order to re-spur waning credit offtake.

■ The move to incentivize the FCNR borrowings (by raising interest rate ceiling) reflects the fact RBI would be weighing the cost of heavy FX intervention in the past two months (USD35-40bn spot+fwd; USD60bn NDF) amidst FPI outflows and limited conviction on steady inflows ahead.

This is clearly a tacit attempt to tap other sources of foreign capital flows, which could give RBI some breathing room and lower its need for FX intervention.