In a powerful one-two monetary punch, the Reserve Bank of India on Friday cut the Cash Reserve Ratio (CRR) by 100 basis points to 3% and slashed the repo rate by 50 basis points to 5.5%, unleashing over ₹2.5 lakh crore in liquidity into the banking system.
RBI Governor Sanjay Malhotra announced the CRR cut will be staggered in four phases, calling it a liquidity infusion designed to reduce banks’ funding costs and stimulate credit growth. “The combined measures aim to boost lending and ease monetary conditions,” Malhotra said during the MPC briefing in Mumbai.
The CRR cut, from 4% to 3%, allows banks to retain more of their deposits instead of parking them idle with the RBI. For every ₹100 in deposits, banks now keep ₹3 in reserve, freeing up ₹1 for lending or investment. The impact is immediate and direct—unlike a repo rate cut, which works through the interest rate channel.
“The RBI just activated BrahMos, Pinaka, and Akash together,” wrote the CIO of Complete Circle Consultants on X, likening the dual-rate and liquidity easing to a multi-pronged strike. The reference underscores the unprecedented scale and coordination of the RBI’s actions.
The ₹2.5 lakh crore released through the CRR cut is expected to lower the cost of funds for banks, improve their net interest margins, and boost profitability. More importantly, it gives them the firepower to issue more loans to consumers and businesses alike—especially in real estate, auto, and small business credit.
Combined with the 50 bps repo rate cut, which directly lowers the cost of borrowing, the RBI has signaled aggressive support for economic expansion. Home loan borrowers will see lower EMIs or shorter loan tenures, while consumers may benefit from cheaper personal and auto loans.
The CRR cut also strengthens policy transmission, as banks are likely to pass on rate benefits faster with more liquidity on hand. It complements the rate cut in pushing both affordability and credit growth forward.
