To ease the potential liquidity stress, the €reserve bank on Friday slashed Cash Reserve Ratio (CRR) by 50 basis points to 4 per cent, a move that would unlock Rs 1.16 lakh crore bank funds.
The RBI on May 4, 2022 had raised CRR to 4.5 per cent from 4 per cent in an off-cycle Monetary Policy Committee (MPC) meeting, with effect from May 21 the same year.
System liquidity, as represented by the net position under the Liquidity Adjustment Facility (Net LAF), continued to remain in surplus during October and November on account of higher government spending, despite a significant increase in currency in circulation during the festive season and capital outflows, RBI Governor Shaktikanta Das said.
Even as liquidity in the banking system remains adequate, he said, systemic liquidity may tighten in the coming months due to tax outflows, increase in currency in circulation and volatility in capital flows.
To ease the potential liquidity stress, it has now been decided to reduce CRR of all banks to 4 per cent of net demand and time liabilities (NDTL) in two equal tranches of 25 basis points, each with effect from the fortnight beginning December 14, 2024 and December 28, 2024, he said.
This will restore CRR to 4 per cent of NDTL, which was prevailing before the commencement of the policy tightening cycle in April 2022.