Liquidity view fuels CRR hike possibility as RBI moves lift inflow outlook

They said the impact on liquidity is likely to become clearer by August, making it a potential window for policy action if surplus liquidity rises materially. While no firm expectations have emerged on the quantum of any increase, some participants said a CRR hike of 25-50 basis points (bps) could be considered if the central bank seeks to absorb a portion of excess liquidity.

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CRR is the amount of cash, as a percentage of deposits, that banks are required to keep with the RBI. 

“The discussion around a CRR hike is being driven by the expectation that foreign inflows could result in a sizeable increase in system liquidity. If the liquidity impact becomes evident, August would be the logical time for any action, and a 25-50 bps CRR increase could become a conversation point,” said the treasury head at a private bank. 

Expectations of a CRR increase, however, remain premature as the liquidity impact of the anticipated inflows has not yet fully materialised. Net liquidity in the banking system stood at a surplus of ₹19,163 crore on Thursday, according to the latest data from the RBI.

“Typically, a CRR increase is viewed as a precursor to monetary tightening or a response to durable surplus liquidity conditions. Such a move may become a possibility if we witness sizeable forex inflows over the next few months, leading to sustained liquidity expansion. For now, we need to wait and watch how liquidity and inflation dynamics evolve,” said the treasury head at another private bank. 

The discussion comes a year after the RBI announced a 100 bp  reduction in the CRR in its June 2025 monetary policy review. The cut, implemented in four tranches beginning September 6, 2025, lowered the CRR to 3 per cent and was estimated to release about ₹2.5 trillion of primary liquidity into the banking system by December 2025. 

On June 5 this year, the RBI announced a series of measures, including a special swap facility for fresh and renewed foreign currency non-resident bank, or FCNR(B), deposits with maturities of three to five years, along with concessional swap arrangements for eligible external commercial borrowings and overseas borrowings by banks. 

Analysts estimate that these measures could lead to a significant increase in durable liquidity, with surplus liquidity potentially rising to ₹8.5 trillion-9.5 trillion in the coming months from around ₹5 trillion currently. The increase is expected to be supported by foreign capital inflows and higher government spending following the RBI’s dividend transfer.