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RBI December 2024 Monetary Policy: Key Highlights and Impacts

Overview of RBI Monetary Policy Announcement – December 6, 2024

On December 6, 2024, the Reserve Bank of India (RBI) outlined its monetary policy, revealing critical decisions and regulatory updates aimed at promoting financial stability and growth. The key highlights include maintaining the repo rate at 6.5% and implementing several measures to enhance liquidity and financial inclusion.

Monetary Policy Committee Resolutions

Repo Rate Decisions

  • The Monetary Policy Committee (MPC) resolved to keep the policy repo rate unchanged at 6.50%. Consequently, other rates remained as follows:
    • Standing Deposit Facility (SDF) Rate: 6.25%
    • Marginal Standing Facility (MSF) Rate: 6.75%
    • Bank Rate: 6.75%

Inflation and Growth Projections

  • Targeting a Consumer Price Index (CPI) inflation rate of 4% within a ±2% band.
  • Projecting real GDP growth for 2024-25 at 6.6% and CPI inflation at 4.8%.

Updated Policy Rates

  • Repo Rate: 6.5%
  • SDF: 6.25%
  • MSF and Bank Rate: 6.75%
  • Cash Reserve Ratio (CRR): 4% (revised down from 4.5%)
  • Statutory Liquidity Ratio (SLR): 18%
  • Fixed Reverse Repo: 3.35%

Development and Regulatory Policies

A. Liquidity and Financial Markets

  1. Cash Reserve Ratio Reduction

    • The CRR for all banks will be reduced by 50 basis points, effective in two stages: 25 basis points from December 14, 2024, and another 25 basis points from December 28, 2024. This adjustment will inject approximately ₹1.16 lakh crore into the banking system.

  2. Interest Rate Adjustments on FCNR(B) Deposits

    • Interest rate ceilings on Foreign Currency Non-Resident Bank (FCNR(B)) deposits are updated:
      • For deposits maturing in 1 to less than 3 years: ARR + 400 bps.
      • For deposits maturing between 3 and 5 years: ARR + 500 bps.
    • This measure is effective until March 31, 2025.

  3. FX-Retail Platform Integration with Bharat Connect

    • The RBI will link the FX-Retail platform with Bharat Connect (formerly Bharat Bill Payment System), enhancing accessibility for forex transactions. A pilot project will initially facilitate the purchase of US Dollars against Rupees.

  4. Introduction of Secured Overnight Rupee Rate (SORR)

    • A new benchmark, SORR, will be developed based on secured money markets, with Financial Benchmarks India Limited (FBIL) tasked to implement this initiative.

B. Regulation

  1. Connect 2 Regulate Initiative
    • The RBI will launch "Connect 2 Regulate," inviting stakeholders to submit ideas and inputs on various regulatory topics through a designated section on the RBI website.

C. Communication Enhancements

  1. Podcast Initiatives
    • To broaden public awareness, the RBI will start producing podcasts for disseminating valuable information to a broader audience.

D. Financial Inclusion Measures

  1. Increased Collateral-Free Agriculture Loan Limits

    • The limit for collateral-free agriculture loans will rise from ₹1.6 lakh to ₹2 lakh per borrower, reflecting inflation and rising agricultural costs, with an official circular forthcoming.

  2. Extension of UPI-linked Pre-sanctioned Credit Lines to Small Finance Banks (SFBs)

    • Following a September 2023 initiative, SFBs will now be permitted to offer pre-sanctioned credit lines through UPI.

E. Fintech Innovations

  1. Ethical AI Framework (FREE-AI)

    • A committee will be formed to craft a framework for the responsible deployment of AI in the financial sector, addressing risks such as algorithmic bias and data privacy.

  2. MuleHunter.AI for Fraud Detection

    • The RBI is piloting the MuleHunter.AI initiative within its Innovation Hub, employing AI to identify mule bank accounts linked to financial fraud. Collaborative efforts with banks are encouraged to enhance this initiative.

Conclusion

The RBI's monetary policy and regulatory measures aim to ensure financial stability, foster inclusiveness, and adapt to technological advancements. These decisions reflect a commitment to support economic growth while managing inflation effectively. Stakeholders in the financial system should remain informed of these developments and actively engage with the RBI’s initiatives.