RBI Faces Tough Choices: Growth Vs Inflation in Upcoming Policy Decisions

As the Reserve Bank of India's Monetary Policy Committee deliberates, economists anticipate maintaining the current policy repo rate, with potential CRR reduction to ensure liquidity. With the economy slowing and inflation still a concern, the RBI's decision on December 6 is crucial for balancing growth and stability.

The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) is in the throes of its latest meeting, and speculation is rife among economists that the central bank might opt to reduce the Cash Reserve Ratio (CRR) for banks instead of cutting the policy repo rate. The policy announcement is expected on Friday, December 6.

The MPC is under pressure as it strives to strike a balance between stimulating economic growth in a decelerating economy and curbing inflation. M Govind Rao, Member of the 14th Finance Commission and former Director of the National Institute of Public Finance and Policy, commented on the committee's challenge, noting the anticipated continuation of the status quo on the policy rate, with a slight CRR reduction likely to ensure liquidity.

The decision is fraught with complexity. While the economic slowdown calls for monetary easing, elevated inflation, particularly in food prices, complicates the scenario. Ankita Pathak of Ionic Wealth highlights the urgency for monetary support, warning of fiscal policy tightening from FY26 onwards. Industry figures like CII's Chandranjit Banerjee advocate a 25-basis-point repo rate cut and additional liquidity measures, emphasizing the significance of the MPC's upcoming decisions.

All eyes are on the December 6 announcement, as the MPC contemplates measures that could shape the economic landscape. While a repo rate cut may facilitate growth, a cautious CRR adjustment might enhance liquidity without exacerbating inflation.

(With inputs from agencies.)