By Siddhi Nayak and Dharamraj Dhutia
MUMBAI (Reuters) -India’s central bank on Friday cut the cash reserve ratio (CRR) – funds that banks are required to hold – by 100 basis points to 3% in a surprise move aimed at boosting lending and speeding up monetary policy transmission.
The cash reserve ratio was last at this level in March 2020, when it was cut as an emergency measure during the COVID-19 pandemic.
The rate was brought back to 4% a year later.
The RBI will cut the CRR in four equal tranches from September to November, releasing 2.5 trillion rupees ($29.1 billion) into the banking system.
“Our experience suggests 4% CRR may not be required at this point,” governor Sanjay Malhotra said at a post-policy press conference in Mumbai.
A 3% CRR looks “comfortable,” he added.
The central bank on Friday cut its key policy rate by a larger-than-expected 50 basis points, taking the total rate cuts in 2025 to 100 basis points.
It has also infused $100 billion into the banking system during December to May.
“Notably, the CRR cut related liquidity could help in RBI unwinding the heavy short FX forward book without adversely impacting the banking system liquidity,” said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank.
($1 = 85.8300 Indian rupees)
(Reporting by Siddhi Nayak and Dharamraj Dhutia; Editing by Mrigank Dhaniwala)
