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RBI Bond Purchases to Lift Liquidity and Cut Lending Rates

30 April 20251 min read
BANKING & FINANCERBI BondPurchases to LiftLiquidity and CutLending Rates30 April 2025safalsetu.com

Why in the news

RBI’s liquidity infusion is expected to help banks pass on rate cuts and lower lending rates.

Key facts

  • Bond buying planned: ₹1.25 trillion of government securities.
  • Dividend to the Union government in May: ₹1.5 trillion.
  • Surplus liquidity expected: ₹5 trillion by June 2025.
  • Overnight call money rate: 5.87%, below the 6% repo rate; likely to ease to 5.75%.

Impact on lending

  • More funds with banks should allow lower lending rates, which earlier liquidity strain made hard.
  • RBI acted on bank feedback that surplus liquidity was needed so cuts do not hurt margins.
  • Retail and small business loans tied to MCLR may be repriced faster.

Economists’ view

Bond purchases of ₹5.3 trillion in 2025 were called unprecedented; comparable buying in the post-COVID period took over six quarters.

Exam angle

  • Related terms: surplus liquidity, call money rate, repo rate, MCLR.

Test yourself

1. How much in government bonds does RBI plan to buy, as per the notes?

RBI plans to buy ₹1.25 trillion of bonds.

2. What level did the overnight call money rate drop to, below the 6% repo rate?

The call money rate fell to 5.87%.

3. Many retail and small business loans are tied to which benchmark that may fall with liquidity?

Retail and small business loans linked to MCLR may be repriced faster.

This topic is part of Daily Current Affairs 30 April 2025 (26 topics).

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