The RBI retains a check in December 2024 by preserving the repo rate unchanged. This decision means that loan interest rates, especially home loan and personal loans, will continue to be Unchanged in near future. The primary aim of the central bank remains to pursue the economic recovery without making borrowing more costly for both businesses and individuals.

Basic changes in 2024 Monetary Policy

1. Interest Rates Stabilisation: The RBI decided to hold the repo rate steady, taking a wait-and-see approach. By doing so, the central bank intends to continue supporting economic growth without raising borrowing costs, which are still critical for businesses and consumers alike. This decision ensures that loan interest rates, particularly for house and personal loans, will stabilise in the near future.

2. Cash Reserve Ratio (CRR) Cut: In a major policy adjustment, the RBI announced a 50-basis point cut on the CRR as part of a substantial policy change. This change implies that commercial banks must now keep a smaller percentage of their deposits with the Central Bank, allowing them to free up more capital for lending and investment. The CRR cut is likely to add significant liquidity to the financial system, boosting loan flow across industries.

3. Impact on Bond Yields: CRR will impact the bonds investment as well. The reduction in CRR is likely to have an immediate impact on bond markets. As banks gain access to more funds, there could be a rise in demand for government and corporate bonds. This Sudden rise in demand tends to push bond prices up, which, in turn, results in lower bond yields. With the RBI's liquidity measures, bond yields are expected to soften in the short term, potentially making bonds a more attractive investment option for risk-averse investors.

4. Primary focus on Inflation Control: The RBI has maintained its focus on controlling inflation, aiming for a range of 4% (+/- 2%), in spite of the liquidity surge. The central bank will take action to control price stability in the upcoming months and has underlined its attention to core inflation, which does not include volatile food and fuel costs. In order to prevent inflation from impeding India's growth prospects, the RBI's commitment to inflation targeting continues to be a pillar of its policy.

5. Growth Outlook: Strong domestic demand and government infrastructure spending are the main drivers of the RBI's forecasted modest economic growth for FY 2024–2025. The RBI is nevertheless optimistic about India's long-term growth trajectory, even though inflationary pressures and global economic concerns are predicted to continue.

6. Financial Inclusion and Digitalization: The RBI’s policy also focuses on enhancing financial inclusion, with a particular emphasis on digital banking initiatives aimed at reaching underserved populations. By expanding access to financial services through digital channels, the RBI is fostering inclusive growth and ensuring that more citizens benefit from the economic recovery.

Implications for the Public and Markets

• Loan and Deposit Stability: Borrowers will enjoy stable borrowing costs as long as key interest rates remain unchanged and enhanced liquidity is made possible by the CRR drop. Because the lower CRR can assist keep market rates from rising, those who have loans with floating rates may feel some comfort. Fixed deposits will probably provide steady returns for depositors, but the impact of lower bond yields might persuade them to look into alternative investment options.

• Bond Markets: The CRR cut is projected to reduce bond yields, making fixed-income products more appealing in the short term. Bonds may attract a large number of investors seeking safer investment options, which would raise prices and lower yields. Because more conservative investors may view bonds as a comparatively secure haven in the face of volatile global markets, this trend could have an impact on portfolio strategies.

• Bank Liquidity and Credit Flow: With the CRR cut, banks will have additional capital to lend, which could ease credit conditions for key sectors like agriculture, small and medium-sized enterprises (SMEs), and exports. This measure is crucial for maintaining the recovery momentum, especially for sectors that require constant financial support to thrive.

Conclusion

he RBI's December 2024 monetary policy balances targeted liquidity interventions like the CRR cut with prudent rate decisions to stimulate growth and manage inflationary pressures. Even if interest rates remain unchanged, the CRR reduction is expected to significantly affect bond yields, liquidity, and the investment climate in general. Even as the system is being tested by international developments, the RBI has put in place the conditions for a strong economy by prioritising growth and financial stability. This strategy is critically important not only for investors and borrowers, but in maintaining financial stability as the country moves on from the pandemic.