RBI steps to enhance liquidity
MPC Boosts Liquidity Measures in Indian Economy: The Monetary Policy Committee (MPC) has taken impactful decisions to infuse liquidity into the Indian banking system. The Cash Reserve Ratio (CRR) was reduced by 100 basis points, and the repo rate was cut by 50 basis points. These actions aim to ease fund flow, making it simpler for banks to lend money to individuals and businesses.
This move is expected to support growth in sectors like housing, startups, and especially the booming quick commerce industry.
What is CRR and why it matters?
The Cash Reserve Ratio is the percentage of total bank deposits that must be kept with the Reserve Bank of India (RBI) in the form of cash. Banks cannot lend this money, cannot invest it, and earn no interest on it. So, reducing the CRR gives banks more funds to lend, directly boosting liquidity in the system.
Think of it like a safety deposit box—if you’re required to keep less money locked away, you have more in your wallet to spend or invest.
Repo rate explained simply
The repo rate is the rate at which the RBI lends money to commercial banks, typically in exchange for government securities. A cut in the repo rate means that banks can now borrow at cheaper rates. This benefits borrowers too, because banks may reduce loan interest rates in response.
For example, a person planning to take a home loan may get a better deal due to this policy move.
Composition and legal backing of MPC
The Monetary Policy Committee operates under Section 45ZB of the amended RBI Act, 1934 (amended in 2016). It consists of six members. The RBI Governor serves as the Chairperson, with three members from RBI and three nominated by the Central Government.
The MPC must meet at least four times a year, and a minimum of four members is required to form a quorum for any meeting. This structure ensures balance and collective decision-making in shaping India’s monetary policy.
Liquidity tools used by RBI
The RBI uses various instruments to control liquidity:
- LAF (Liquidity Adjustment Facility): Includes repo and reverse repo operations, used to adjust day-to-day liquidity.
- SLR (Statutory Liquidity Ratio): Banks must keep a portion of their deposits in liquid assets like gold or government securities.
- SDF (Standing Deposit Facility): Helps absorb surplus cash from banks without giving securities in return.
- MSF (Marginal Standing Facility): Allows banks to borrow overnight during emergencies.
- OMO (Open Market Operations): RBI buys/sells government bonds to increase or decrease money in the market.
Real-world impact on sectors
With more money available to lend, industries like quick commerce can grow faster. For instance, platforms that deliver groceries in 10 minutes rely heavily on working capital. Easier access to credit means they can expand their delivery networks, offer better discounts, and reach more consumers.
Lower interest rates also help boost household consumption and business expansion across multiple sectors.
Static Usthadian Current Affairs Table
MPC Boosts Liquidity Measures in Indian Economy:
| Topic | Key Fact |
| CRR | Reduced by 100 basis points in 2025 |
| Repo Rate | Cut by 50 basis points |
| MPC | Formed under Section 45ZB of RBI Act, 1934 |
| MPC Composition | 6 members (3 RBI + 3 Govt appointed), headed by RBI Governor |
| MPC Meetings | At least 4 times a year, quorum is 4 members |
| SLR | Maintained by banks in liquid form (cash/gold/securities) |
| LAF | Manages daily liquidity using repo/reverse repo |
| SDF | Used to absorb excess liquidity without collateral |
| MSF | Emergency borrowing tool for banks |
| OMO | Used to inject or absorb liquidity via bond market |
| RBI | Central bank of India, established in 1935 |
| Quick Commerce | Fast-growing sector benefiting from liquidity support |
