Introduces Incremental Cash Reserve Ratio (I-CRR)
RBI’s Monetary Policy Committee Holds Repo Rate; Introduces Incremental Cash Reserve Ratio (I-CRR)
Chennai, August 10: As anticipated, the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) has opted to maintain the repo rate at 6.50 percent. Additionally, the MPC has decided to implement an incremental cash reserve ratio (I-CRR) of 10 percent for scheduled banks on the growth in their net demand and time liabilities (NDTL) between May 19 and July 28.
This step aims to absorb the surplus liquidity in the system arising from various factors, including the reintroduction of Rs 2,000 notes into the banking system.
RBI Governor Shaktikanta Das, announcing the outcomes of the three-day MPC discussions on Thursday, revealed that the Committee unanimously opted to retain the repo rate at 6.5 percent.
The standing deposit facility (SDF) rate will remain unchanged at 6.25 percent, while the marginal standing facility (MSF) rate and the Bank Rate will continue at 6.75 percent.
Das pointed out that considering ongoing monetary transmission and headline inflation surpassing the 4 percent target, the MPC’s focus remains on gradually withdrawing accommodation to ensure inflation aligns with the target while sustaining growth.
However, the decision was not unanimous, with Shashanka Bhide, Ashima Goyal, Rajiv Ranjan, Michael Debabrata Patra, and Das voting in favor, while Prof. Jayanth R. Varma voted against.
The RBI Governor shared that, taking economic factors into account, the MPC has projected a GDP growth of 6.5 percent for FY24.
Regarding inflation, the MPC forecasted a rate of 5.4 percent for 2023-24, considering both domestic and global factors.
Madan Sabnavis, Chief Economist at the Bank of Baroda, noted, “The introduction of an incremental cash reserve ratio (CRR), though temporary, will impound bank resources and potentially impact market rates. Although liquidity surpluses will persist, the concept of impounding resources might induce upward sentiment and interest rate pressure.”
The MPC convened from Tuesday to Thursday.
