RBI's Major Cut in CRR Aims to Boost Liquidity

The Reserve Bank of India (RBI) has made a bold monetary decision, announcing a substantial cut in the Cash Reserve Ratio (CRR) by 1%. This measure is set to release Rs 2.5 lakh crore in liquidity, facilitating increased lending to productive sectors of the economy.

The reduction will be executed in four equal tranches by November 2025, bringing the CRR down to 3%. This adjustment allows commercial banks more flexibility with their funds, as they will maintain a lower percentage in liquid cash with RBI, which in turn supports lending activities.

This decision echoes a similar move in March 2020 during the early stages of the Covid-19 pandemic. RBI Governor Sanjay Malhotra reinforced the bank's commitment to maintaining liquidity and highlighted that this change should reduce banks' funding costs, thereby aiding monetary policy transmission to credit markets and stimulating economic growth.

(With inputs from agencies.)