RBI to Use CRR More Often for Liquidity Management
In June 2025 reports said RBI wanted CRR to become a routine liquidity management tool and not an emergency measure, after a surprise cut.
Key facts
- CRR moves from 4% to 3% in phases, freeing ₹2.5 trillion ($29.25 billion).
- Using CRR often would cut dependence on OMOs and FX swaps, which can distort bond yields.
- Goal: better policy rate transmission, bringing the weighted average overnight call rate near the repo rate (5.5%).
- From December to May RBI put in $100 billion via OMOs and FX swaps, its largest such injection over a similar period.
Why it matters
- Deposit growth gives RBI room to cut CRR safely.
- CRR is seen as more efficient for system liquidity.
Other tools
- VRRR (Variable Rate Reverse Repo) auctions to drain surplus funds.
- CRR can be raised if lasting foreign inflows create too much liquidity.
Exam angle
- Related terms: OMO, VRRR, policy transmission.