Indian equity benchmarks returned to the positive territory after opening lower in Friday's trade. The benchmark 30-share BSE Sensex pack and the broader NSE Nifty climbed up to 0.10 per cent in late-morning deals today.
The upmove came even as the Reserve Bank of India (RBI) kept key interest rate unchanged due to "high inflation". The central bank has maintained the key policy repo rate at 6.5 per cent. This is for the 11th consecutive time that the RBI has kept the repo rate unchanged. The RBI has maintained the repo rate at 6.5 per cent since February 2023.
However, the Reserve Bank has decided to cut banks' cash reserve ratio by 50 basis points (bps) to 4 per cent, Governor Shaktikanta Das said in his monetary policy address. The cash reserve ratio, or CRR, is the proportion of deposits that banks need to set aside as cash.
"As the market anticipated, the CRR rate cut has happened. It is a surprising and encouraging move which will release more liquidity into the system. The RBI wants to balance both inflation as well as growth. But going ahead, we need to see the further RBI commentary on rate cut," said Kranthi Bathini, Director of Equity Strategy at WealthMills Securities.
The cut will be in two tranches of 25 bps each, kicking in on December 14 and December 28. The reduction in CRR would free up Rs 1.16 lakh crore in the banking system, Das mentioned.
"The RBI cutting the CRR by 50 bps for the first time since April 2020 signals the direction of monetary policy. While key policy rates are unchanged for the 11th straight time, the stars are aligning for a potential rate cut in February. We still need to look at the global trends as inflation remains volatile. The RBI has done a fine job of balancing inflation controls with economic growth," said Adhil Shetty, CEO of Bankbazaar.com.
Further, the Reserve Bank also raised the interest rate ceiling for banks for foreign currency non-resident (FCNR-B) deposits, to increase capital inflows in the country. FCNR-B allows non-resident Indians to hold term deposits in India in foreign currencies.