RBI Cuts CRR: The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) on Friday cut the Cash Reserve Ratio (CRR) by 50 basis points (0.50 percent besides keeping the repo rate intact at 6.5 percent this, the CRR has now been reduced from 4.5 per percent per percents tell you that with this the CRR has returned to the level before the start of the policy tightening cycle in April 2022. RBI Governor Shaktikanta Das said that the CRR of all banks will be reduced by 50 basis points in two equal installments of 25 basis points. This will bring the CRR to 4% of NDTL (Net Demand & Time Liabilities). Know what it means and what will be its impact on the common people.

What is CRR

CRR is the minimum amount of customer deposits that a commercial bank is required to keep in cash or as a deposit with the RBI. The CRR rate is determined as per the guidelines of the central bank.

This is part of the central bank's strategy to ensure adequate liquidity and keep interest rates stable. This ensures that banks have enough funds to meet customer withdrawal demands and liquidity and that management is done effectively.

Impact on general consumers/people

If seen, CRR does not have a direct impact on customers/people. Because it is the responsibility of the banks to maintain it. But it is related to the deposits of customers. CRR plays an important role in controlling the money supply of the economy and is an important tool in the monetary policy of RBI.

How RBI uses CRR

When inflation rises, RBI increases CRR to limit the funds available (with banks) for lending, which helps reduce excess liquidity and reduce prices.

Conversely, during slow economic growth, the RBI reduces the CRR, allowing banks to lend more freely, thereby boosting investment and stimulating economic activity.

Now that RBI has reduced CRR, banks will be able to lend more, which will boost investment and economic activity as banks will have to keep fewer reserves.

What is the expert's view?

BankBazaar CEO Adhil Shetty has said that the RBI's decision to cut CRR by 50 basis points for the first time since April 2020 is a sign of a new direction of monetary policy. With the repo rate remaining unchanged for the 11th consecutive time, there is hope of a cut in February.

According to Shetty, we still need to look at global trends as inflation remains volatile. RBI has done a good job of balancing inflation control with economic growth.

Impact on home loans

Shetty said that most home loans in India have floating interest rates. With no change in the repo rate, your EMI is unlikely to increase now. This is good news for borrowers who are on a tight budget.

Banks are likely to keep lending rates stable. If you are planning to buy a home or refinance your loan, this may be a good time to negotiate a better rate.