RBI Cuts CRR By 100 Bps, To Infuse Liquidity Worth Rs 2.5 Lakh Crore

In a surprise move, the Reserve Bank of India has cut cash reserve ratio by 100 basis points, Governor Sanjay Malhotra said during the monetary policy committee meet on Friday.

With this move, CRR will stand at 3% from 4% earlier. The central bank will infuse Rs 2.5 lakh crore worth of liquidity in the banking system at the end of December 2025. This CRR cut will reduce cost of funding for banks.

This reduction will be carried out in four equal tranches of 25 bps each, with effect from the fortnights beginning Sept. 6, Oct. 4, Nov. 1 and Nov. 29, 2025, Malhotra said.

Besides providing durable liquidity, it will reduce the cost of funding of the banks, thereby helping in monetary policy transmission to the credit market, he said.

"The Reserve Bank remains committed to provide sufficient liquidity to the banking system. I would like to reiterate that we will continue to monitor the evolving liquidity and financial market conditions and proactively take further measures, as warranted," he said.

This has come as the RBI has been infusing liquidity in the banking system since the start of 2025 by various measures such as variable rate repo auctions, dollar-rupee buy/sell swaps and open market operations.

As on June 5, liquidity in the banking system stood at a surplus of Rs 3.03 lakh crore.

"The sharp drop in CRR is likely to keep liquidity conditions suitably comfortable to ensure monetary transmission," Upasna Bhardwaj, chief economist at Kotak Mahindra Bank said.

The RBI's MPC also cut the benchmark repo rate by 50 bps for the third straight time. The first rate cut was in February this year, followed by another in April.

The repo rate now stands at 5.5% with a 5:1 majority. Saugata Bhattacharya voted for a 25 bps cut in repo rate, while the others voted for a 50 bps cut.

The standing deposit facility rate, pegged 25 bps below the repo rate, stands at 5.25% and the marginal standing facility rate, which is 25 bps above the repo rate, is 5.75%.

The committee also changed its stance to 'neutral' from 'accommodative'.

"The higher than expected repo rate cut comes along with a shift in the stance back to neutral. This clearly points towards future decisions being more data dependent given the significant global uncertainties," Bhardwaj said.