Sood says RBI addressing growth and inflation dynamics
The Federation of Indian Chambers of Commerce and Industry (FICCI) has welcomed the 50-bps cut in the Cash Reserve Ratio (CRR) by the Reserve Bank of India on 6 Dec 2024.
Responding to recent slowdown in economy, RBI kept report rates unchanged at 6.5% and slashed CRR 4%.
“This move is well-timed and practical and should help ease out the liquidity situation supporting credit and overall growth,” said FICCI, adding the business community had widely expected the RBI move.
“On inflation front, the prices are expected to moderate in the latter part of current fiscal year. We look forward to a cut in repo rate in the next policy statement,” said FICCI President Harsha Vardhan Agarwal.
Food prices have been driving the current spurt in prices and a seasonal correction is on anvil. It is pertinent to ensure a seamless supply side framework through better planning, logistics and distribution management of food items leveraging careful monitoring of production data.
The RBI’s recent policy announcements demonstrate a calibrated approach to addressing growth and inflation dynamics, added Deepak Sood, Partner and Head Fixed Income, Alpha Alternatives.
The downward revision of growth projections alongside the upward adjustment of inflation estimates highlights the delicate balance required in managing these priorities https://www.investindia.gov.in/.
“Liquidity measures, such as the reduction in the CRR, aim to ease pressures on the banking system, support Net Interest Margins (NIMs), and boost credit flow,” he continued.
“However, systemic liquidity is expected to remain tight for the remainder of FY25-26, prompting the need for continued liquidity management through additional tools like Open Market Operations (OMOs).”
The growth-inflation trajectory, along with the Monetary Policy Committee’s stance, signals the potential for a shallow rate cut cycle beginning with the February MPC meeting https://www.bseindia.com/.
“We remain optimistic about the interest rate environment and recommend a long-duration strategy, given that domestic factors support stable government bond yields,” said Agarwal.
That said, clarity on global macroeconomic conditions, particularly the US interest rate environment, will remain critical in shaping market dynamics https://www.nseindia.com/.
The RBI’s decision to raise the interest rate ceiling for FCNR(B) deposits is expected to enhance banks’ ability to attract dollar inflows, thereby supporting and stabilizing the Indian rupee.
Furthermore, the introduction of the Secured Overnight Rupee Rate (SORR) as a benchmark, aligned with global post-LIBOR transitions, is a progressive step towards enhancing the robustness and transparency of India’s financial market framework, said Agarwal. Fiinews.com
