Context:
Fitch Ratings has assessed the Reserve Bank of India’s (RBI’s) recent liquidity management actions and confirmed that these efforts will support monetary policy transmission, particularly in view of the anticipated 100 basis points (bps) rate cut in 2025.
Key Highlights:
Massive Liquidity Injection in 2025
- RBI has injected ₹5.6 trillion into the banking system since January 2025.
- The liquidity infusion equals 2% of system assets.
- Infusions were made primarily through government securities (G-Sec) purchases.
- These measures have created surplus system liquidity since March 2025.
CRR Cut to Release Additional Funds
- RBI’s decision to cut the Cash Reserve Ratio (CRR) by 100 bps will:
- Release ₹2.7 trillion in liquidity, in phased tranches.
- Further ease funding conditions for banks and financial institutions.
Monetary Transmission Support
- Fitch stated that accommodative funding conditions would support rate transmission.
- RBI’s stance and actions align with expectations of a 100 bps policy rate cut in 2025.
