RBI may not need immediate CRR hike as liquidity surplus likely to moderate: UBI Report
The Reserve Bank of India may not need to raise the cash reserve ratio (CRR) in the immediate term as the banking system's surplus liquidity is expected to moderate through FY27, with the central bank able to use more flexible tools such as variable rate reverse repos and forex swaps, noted a research report by Union Bank of India.
New Delhi: A Union Bank of India research report suggests the Reserve Bank of India may not need to immediately raise the cash reserve ratio (CRR) as banking system liquidity is expected to ease by the end of FY27. The report found the banking system's surplus liquidity had increased to around Rs 10.36 lakh crore, following a successful RBI foreign-currency mobilization program that brought in USD 136.38 billion by the end of August.
While this influx bolstered India's external reserves and provided banks with more deposits, it also introduced a new challenge: managing the influx of rupee liquidity. The report anticipates this surplus to ease materially through FY27, with core liquidity expected to be around Rs 2.96 lakh crore by the end of March 2027. The RBI is expected to prioritize variable rate reverse repos, forex sell-buy swaps, and short-term open market operation sales before considering a CRR hike.
However, the report advises the CRR should only be a last resort if the surplus proves more persistent. The report notes that an immediate CRR hike would only be necessary if surplus liquidity remains around Rs 8-10 lakh crore despite sustained VRRR operations, weak participation in longer-duration VRRR auctions, and a weighted average call rate below the repo rate.
Written by urgent.news from The Economic Times - Economy's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
