RBI Liquidity Management: Surplus Turn and Calls for Clarity
Why in the news
System liquidity flipped from tight to flush within months, and market voices asked RBI to be clearer about managing it.
Key facts
- End-2024: deficit near ₹2 trillion, as RBI sold dollars to support the rupee.
- Mid-2025: surplus of about ₹3-4 trillion daily, thanks to easing forex pressure, a favourable inflation outlook, ₹9.5 trillion injected since January 2025 and the 100 bps CRR cut (four tranches).
- Some loans priced as low as 6.1%; banks are trimming savings deposit rates.
- Corporates favoured markets: ₹10 trillion bond issuance in FY25, 60% of fresh capital via debt.
| Benefits | Risks |
|---|---|
| Smoother credit transmission | Asset-price inflation |
| Cheaper borrowing | Lower savings rates, shift to riskier assets |
| Support to investment and consumption | Credit to unqualified borrowers |
| Help for government borrowing | Squeezed bank margins |
Policy challenges
- The WACR sits below the repo rate, signalling surplus.
- RBI uses VRRR auctions to absorb funds but may need stronger tools; no explicit liquidity target causes uncertainty.
Way forward
- Announce a liquidity band, adjust VRRR scale and frequency, watch credit quality, and coordinate with fiscal authorities.
Exam angle
- VRRR = Variable Rate Reverse Repo; WACR = Weighted Average Call Rate.