Non-rate sensitive sectors showed a mixed reaction on December 6, following the Reserve Bank of India’s (RBI) decision to cut the reserve ratio (CRR) by 50 basis points to 4.5 percent, while keeping the repo rate steady at 6.5 percent. The move is expected to inject Rs 1.6 lakh crore into the banking system, which has been implemented in two 25-bps phases.
The Nifty Bank index rose 0.3 percent, buoyed by hopes that the liquidity squeeze will improve after the CRR. Auto stocks also gained 0.3 percent, driven by optimism over improved credit availability for consumers. However, the Nifty Realty index fell 0.6 percent, as higher borrowing costs continued to weigh on investor sentiment in the sector.
This is only the second time the CRR has been reduced in four years, with the previous one taking place in March 2020 to combat the financial crisis caused by the pandemic. By lowering the CRR, the RBI aims to balance the currency while maintaining its “neutral” stance amid persistent inflationary pressures.
While the repo rate remains unchanged, reflecting the MPC’s cautious approach, the CRR reduction is seen as a step towards stimulating economic activity. The RBI also revised its FY25 GDP growth forecast down to 6.6 percent from 7.2 percent, citing inflation and political conditions.
Investors are closely watching how these measures will affect the performance of the industry, as banks and automobiles may benefit in the near term, while real estate may face headwinds.
