On December 6, the Reserve Bank of India (RBI) took significant steps to support the economy by reducing the Cash Reserve Ratio (CRR) by 50 basis points, bringing it down to 4%. This move is expected to free up Rs 1.16 lakh crore in liquidity for the banking system, providing more funds for banks to lend and stimulate economic growth. CRR represents the portion of a bank’s deposits that must be kept with the RBI, and by cutting it, the central bank hopes to ease liquidity pressures that have been exacerbated by its earlier actions to stabilize the rupee.

While the CRR was reduced, the RBI kept the Repo rate unchanged at 6.5%, maintaining its cautious approach amid ongoing economic uncertainty. This decision came after a 4-2 vote from the Monetary Policy Committee (MPC), reflecting differing views on how to balance inflation control and economic recovery. Governor Shaktikanta Das highlighted that food inflation has been a persistent concern, pushing October’s inflation rate to a 14-month high of 6.21%. He noted that this continues to squeeze consumers' purchasing power, making price stability critical for sustaining long-term growth.

In light of a slowdown in the economy, the RBI also revised its GDP growth forecast for FY2025 to 6.6%, down from an earlier estimate of 7.2%. This adjustment comes after the economy grew at just 5.4% in the July-September quarter, signalling weaker performance in sectors like manufacturing. Along with this, the central bank raised its inflation projection to 4.8%, citing the ongoing pressure from rising food prices.

For borrowers, the decision to hold the Repo rate steady means no immediate hike in loan EMIs, though the CRR cut could lead to slightly lower deposit rates as banks have more liquidity to work with.