RBI Liquidity Puzzle: Infusion Meets Outflows! What It Means for Your Money.

Banking/Finance

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Updated on 13 Nov 2025, 10:05 am

The Reserve Bank of India (RBI) recently implemented measures, including a Cash Reserve Ratio (CRR) cut and maturing government securities, to add significant liquidity to the banking system. The CRR cut alone was designed to inject approximately Rs 1.8 lakh crore in three phases. However, the expected substantial liquidity cushion has been diminished by several draining factors.

**Impact** This news has a moderate impact on the Indian stock market, primarily affecting the financial sector and interest-rate sensitive stocks. A tighter liquidity situation can lead to higher borrowing costs for banks and companies, potentially impacting profitability and investment. Conversely, a continued surplus, even if moderate, keeps money market rates low, which can be supportive. Rating: 6/10

**Explanation of Terms:** * **Liquidity**: Refers to how easily an asset can be converted into cash without affecting its market price. In the banking system context, it means the availability of funds for banks to meet their obligations and lend. * **Cash Reserve Ratio (CRR)**: The percentage of a bank's total deposits that it must hold in reserve with the central bank, not available for lending. A cut in CRR frees up funds for banks. * **Foreign Exchange (FX) interventions**: Actions taken by a central bank to buy or sell its own currency against foreign currencies in the open market to influence the exchange rate. Selling dollars to support the rupee absorbs rupee liquidity. * **Currency in Circulation (CIC)**: The total amount of physical currency (notes and coins) that is in the hands of the public at any given time. * **Credit Growth**: The rate at which banks increase their lending to businesses and individuals. * **Goods and Services Tax (GST)**: A consumption tax levied on the supply of goods and services in India. * **Spot Market**: A public financial market where financial instruments or commodities are traded for immediate delivery. * **Monetary Policy**: Actions undertaken by a central bank to manipulate the money supply and credit conditions to stimulate or restrain economic activity.