RBI cuts cash reserve ratio by 100 bps cut to boost liquidity
Mumbai: In a major move to boost liquidity in the economy, the Reserve Bank of India (RBI) on Friday announced a cut in the Cash Reserve Ratio (CRR) by 100 basis points in four tranches of 25bps each.
With this, the CRR has been reduced from 4 per cent to 3 per cent, which is expected to release about Rs 2.5 lakh crore into the banking system.
RBI Governor Sanjay Malhotra, while announcing the decisions of the Monetary Policy Committee (MPC), also stated that the policy stance has been changed from "accommodative" to "neutral".
He said, "Hence, the MPC also decided to change the stance from accommodative to neutral. From here onwards, the MPC will be carefully assessing the incoming data and the evolving outlook to chart out the future course of monetary policy in order to strike the right growth inflation balance".
He explained that after a cumulative repo rate cut of 100 basis points since February 2025, the space for further monetary support is now limited.
The Governor said, "The inflation outlook therefore for the year is now being revised downwards from our earlier forecast of 4 per cent to 3.7 per cent."
Inflation has seen a significant drop over the past six months, coming down from above the tolerance band in October 2024 to 3.2 per cent in April 2025.
Governor Malhotra noted that the moderation in inflation is broad-based, supported by easing international commodity prices and expectations of a global growth slowdown.
He said, "assuming a normal monsoon, CPI inflation for the financial year 2025-2026 is now projected at 3.7 per cent, as I mentioned earlier, this is a downward revision from our earlier forecast of 4 per cent. We are projecting inflation for Q1 at 2.9 per cent, Q2 at 3.4 per cent, Q3 at 3.9 per cent, and Q4 at 4.4 per cent. The risks are evenly balanced."
On the growth front, the RBI retained its GDP growth forecast for 2025-26 at 6.5 per cent. The quarterly projections are 6.5 per cent for Q1, 6.7 per cent for Q2, 6.6 per cent for Q3, and 6.3 per cent for Q4.
He said, "Taking all factors into consideration, real GDP growth rate for this year 2025-26 is projected at 6.5 per cent. We continue with our earlier forecast with Q1 at 6.5 per cent, Q2 at 6.7 per cent, Q3 at 6.6 per cent, and Q4 at 6.3 per cent."
Announcing the monetary policy Governor also announced that the MPC has decided to reduce the policy repo rate under by 50 basis points to 5.5 per cent.
He said, "The reduction recommended by the MPC is for 50 basis points to 5.5 per cent. This is with an immediate effect".
The RBI Governor also mentioned that the reason for repo cut is that the inflation softened, near-term and medium-term alignment is within the RBI range, and food inflation remains soft.
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