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RBI’s Monetary Policy (December 06, 2024): In A Nutshell

The bi-monthly monetary policy of Reserve Bank of India (RBI) was announced on December 06, 2024. Here are some of the highlights of the monetary policy announcement.

Rates

 

ChangeRate
Policy repo rateUnchanged6.50%
Standing deposit facility (SDF) rate6.25%
Marginal standing facility (MSF) rate6.75%
Bank rate6.75%

Monetary policy stance

  • ‘Neutral’ and to remain unambiguously focused on a durable alignment of inflation with the target, while supporting growth.

Domestic Economy 

 

GDP growth projectionCPI inflation projection
FY 2024-256.6%4.8%
Q3 of FY 2024-256.8%5.7%
Q4 of FY 2024-257.2%4.5%
Q1 of FY 2025-266.9%4.6%
Q2 of FY 2025-267.3%4.0%
  • Growth in real GDP in Q2 at 5.4% turned out to be much lower than anticipated. This decline in growth was led mainly by a substantial deceleration in industrial growth due to subdued performance of manufacturing companies (petroleum products, iron and steel and cement), contraction in mining activity and lower electricity demand.
  • Inflation increased sharply in September (5.5%) and October (6.2%) 2024 led by an unanticipated increase in food prices. 
  • During 2024-25 (April-November), the Indian rupee (INR) depreciated by 1.3% largely due to pressure from strengthening US Dollar and selling pressure by foreign portfolio investors in October and November. Nevertheless, both the depreciation of the INR and its volatility was less as compared to its emerging market economy (EME) peers.
  • The gap between growth of credit and deposits of scheduled commercial banks has narrowed with deposits keeping pace with loan growth.
  • India’s CAD/GDP ratio stood at 0.7% in 2023-24, and 1.1% during Q1:2024-25. 
  • India’s external debt to GDP ratio declined marginally to 18.8% at end-June 2024 from 18.9% at end-March 2024. 
  • The import cover of reserves stood at around 11 months as on November 22, 2024.

Other measures

  • To address the issues of unclaimed deposits, inoperative accounts and frozen accounts due to pendency of KYC updation, banks have been advised to take necessary steps urgently to bring down the number of such accounts and make the process hassle free. Further, banks have been advised to segregate the accounts of beneficiaries of various Central / State Government schemes through direct benefit transfer (DBT) and facilitate uninterrupted credit and utilisation of DBT amounts. 
  • Cash reserve ratio (CRR) of all banks will be reduced by 50 bps in two equal tranches of 25 bps each to 4% of net demand and time liabilities (NDTL), restoring it to CRR rates prevailing before the commencement of the policy tightening cycle in April 2022. This reduction in the CRR would release primary liquidity of about ₹1.16 lakh crore to the banking system.

CRR as a % of NDTL Effective from reporting fortnight beginning
4.25% December 14, 2024
4% December 28, 2024
  • The interest rate ceilings on Foreign Currency Non-Resident Bank [FCNR(B)] deposits has been increased and the increased limits will be applicable till March 31, 2025. 
Period of Deposit Ceiling Rate
1 year to less than 3 years Overnight Alternative Reference Rate (ARR) for the respective currency / Swap plus 400 basis points (earlier 250 basis points)
3 years and above up to and including 5 years Overnight ARR for the respective currency / Swap plus 500 basis points (earlier 350 basis points)
  • To bring greater transparency and fairness in the pricing of foreign exchange for users, especially for individuals and the Micro, Small and Medium Enterprises (MSMEs), the Clearing Corporation of India Limited (CCIL) launched the FX-Retail platform in 2019. Presently, the FX-Retail platform is accessible through an internet-based application.
    • The FX-Retail platform will be linked with Bharat Connect (earlier known as Bharat Bill Payment System) operated by the NPCI Bharat Connect. 
    • The linkage will enable users to register and transact on the FX-Retail platform through the apps of banks (mobile applications, internet banking etc.) and non-bank payment system providers, which are integrated with Bharat Connect. 
    • In the first phase, a pilot facilitating purchase of US Dollar against the Rupee by individuals and sole proprietors will be implemented. 
    • Going forward, the scope will be expanded to cover other FX transactions including sale of US Dollar against the Rupee and other categories of users. 
  • RBI had set up the Committee on the MIBOR Benchmark (Chairperson: Shri Ramanathan Subramanian) to review the Rupee interest rate benchmarks in the country, especially the usage of Mumbai Interbank Outright Rate (MIBOR), and to examine the need for transition to new benchmarks. In line with the recommendations of the Committee, a new benchmark will be developed based on the secured money markets (both basket repo and TREP) – the Secured Overnight Rupee Rate (SORR). 
  • A new programme, namely, ‘Connect 2 Regulate’ will be launched under the ongoing RBI@90 commemorative events. A dedicated section in the RBI’s website will be made available for stakeholders to share their ideas and inputs on specific topics.
  • RBI will add ‘podcasts’ to its communication toolkit for wider dissemination of information.
  • The limit for collateral free agricultural loans including loans for allied activities has been increased from ₹1.6 lakh to ₹2 lakh per borrower. The banks shall give effect to the revised instructions expeditiously and in any case not later than January 01, 2025.
  • In September 2023, the scope of Unified Payments Interface (UPI) was expanded by enabling pre-sanctioned credit lines to be linked through UPI and used as a funding account by Scheduled Commercial Banks excluding Payments Banks, Small Finance Banks (SFBs) and Regional Rural Banks. Now, SFBs are also permitted to extend pre-sanctioned credit lines through the UPI. 
  • A committee comprising of experts from diverse fields will be set up to recommend a Framework for Responsible and Ethical Enablement of AI (FREE-AI) in the financial sector.
  • Use of money mule accounts is a common method adopted by fraudsters to channel proceeds of frauds. 
    • RBI is currently running a hackathon on the theme “Zero Financial Frauds” which includes a specific problem statement on mule accounts, to encourage development of innovative solutions to contain the use of mule accounts. 
    • Another initiative in this direction is the AI / ML based model called MuleHunter.AI, being piloted by Reserve Bank Innovation Hub (RBIH), a subsidiary of RBI. This model enables detection of mule bank accounts in an efficient manner. A pilot with two large public sector banks has yielded encouraging results. Banks are encouraged to collaborate with RBIH to further develop the MuleHunter.AI initiative to deal with the issue of mule bank accounts being used for committing financial frauds.


References

Reserve Bank of India. (2024, December 06). 'Credit Flow to Agriculture – Collateral free agricultural loans'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12755&Mode=0

Reserve Bank of India. (2024, December 06). 'Governor’s Statement: December 6, 2024'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=59246

Reserve Bank of India. (2024, December 06). 'Interest Rates on Foreign Currency (Non-resident) Accounts (Banks) [FCNR(B)] Deposits'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12753&Mode=0

Reserve Bank of India. (2024, December 06). 'Maintenance of Cash Reserve Ratio (CRR)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12754&Mode=0

Reserve Bank of India. (2024, December 06). 'Statement on Developmental and Regulatory Policies'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=59245


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