Indian equity benchmarks rose after falling 0.16% in the early trading in Friday, and the BSE Sensex and NSE Nifty gained 0.10% in late morning trade. Their uptick came as the Reserve Bank of India (RBI) continued to leave its key policy repo rate unchanged at 6.5 per cent after its 11th straight meeting, arguing that it was a reaction to ‘high inflation’. The repo rate has not changed since February 2023.
Yet a substantial policy shift was made when the RBI reduced the cash reserve ratio (CRR) by 50 bps to 4%. It is the part of deposits that banks must hold as cash and the cash equivalent. In two tranches of 25 basis points each, the reduction will start from December 14 and December 28, RBI Governor Shaktikanta Das said. According to the banking system, the move would inject ₹1.16 lakh crore into liquidity.
Market experts welcomed the decision. ‘The cut in the CRR is positive, positive and unexpected as it is likely to address liquidity, balance inflation and growth.’ The commentary of Future RBI on rate cuts will become crucial: Kranthi Bathini, Director, Equity Strategy, WealthMills Securities.
Moreover, the RBI increased the ceiling for interest rates for foreign currency non resident (FCNR-B) deposits to spur more capital inflow. This adds to the already solid economic outlook by providing this facility to non resident Indians to take term deposits in India in foreign currencies.
Speaking on the CRR cut, CEO, Adhil Shetty, said it is the first since April 2020 and is a signal that the central bank may cut interest rate in February 2024. But he warned that inflation volatility and global trends continue to be major issues.
RBI’s decisions weigh the need to check inflation against economic growth, a sign that India’s financial markets will benefit.
Disclaimer: This article is for informational purposes only. Verify details independently before making financial decisions. The author is not liable for any actions taken.
