To ease the potential liquidity stress, the Reserve Bank on Friday slashed Cash Reserve Ratio (CRR) by 50 basis points to 4 per cent, a move that would unlock Rs 1.16 lakh crore bank funds.
The RBI on May 4, 2022 had raised CRR to 4.5 per cent from 4 per cent in an off-cycle Monetary Policy Committee (MPC) meeting, with effect from May 21 the same year.
System liquidity, as represented by the net position under the Liquidity Adjustment Facility (Net LAF), continued to remain in surplus during October and November on account of higher government spending, despite a significant increase in currency in circulation during the festive season and capital outflows, RBI Governor Shaktikanta Das said.
Even as liquidity in the banking system remains adequate, he said, systemic liquidity may tighten in the coming months due to tax outflows, increase in currency in circulation and volatility in capital flows.
To ease the potential liquidity stress, it has now been decided to reduce CRR of all banks to 4 per cent of net demand and time liabilities (NDTL) in two equal tranches of 25 basis points, each with effect from the fortnight beginning December 14, 2024 and December 28, 2024, he said.
This will restore CRR to 4 per cent of NDTL, which was prevailing before the commencement of the policy tightening cycle in April 2022.
"This reduction in the CRR is consistent with the neutral policy stance and would release primary liquidity of about Rs 1.16 lakh crore to the banking system," he said.
Going forward, he said, the Reserve Bank will continue to be nimble and proactive in its liquidity management operations to ensure that money market interest rates evolve in an orderly manner and the productive requirements of the economy are met.
Meanwhile, the RBI has maintained status quo for 11th time in a row on the policy rate front.
Repo rate remained unchanged at 6.5 per cent.
Consequently, the standing deposit facility (SDF) rate remains unchanged at 6.25 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent.
The MPC also decided to continue with the neutral monetary policy stance and to remain unambiguously focused on a durable alignment of inflation with the target, while supporting growth.
