New Delhi [India], May 29 : The Reserve Bank of India (RBI) will continue to undertake liquidity management operations to ensure adequate liquidity in the financial system, especially for the productive sectors of the economy, RBI said on Thursday in its annual report.
The report highlighted that the central bank will align its liquidity operations with the monetary policy stance. This approach aims to maintain sufficient liquidity in the system to support key sectors that drive economic growth.
RBI said "Reserve Bank will undertake liquidity management operations in sync with the monetary policy stance and keep system liquidity adequate to meet the needs of the productive sectors of the economy".
As per the report, domestic economic activity is expected to strengthen from the lows recorded in the first half of 2024-25. Headline inflation is projected to ease and gradually move closer to the RBI's target in 2025-26.
The central bank reiterated its commitment to achieving durable price stability, calling it a necessary foundation for sustaining high growth over the long term.
The report also mentioned that the system liquidity turned into surplus during the second quarter of 2024-25. This shift was supported by a rise in government spending after the general elections, net foreign exchange purchases by the RBI, and the return of currency to the banking system.
The Reserve Bank reduced the policy repo rate by 25 basis points during the February policy meeting, as the evolving growth-inflation dynamics created space to support economic expansion.
Following the rate cut, the central bank also conducted a range of market operations to inject durable liquidity into the financial system. As a result, the system returned to a liquidity surplus by the end of March 2025.
The report says that In response to the rate cut, banks have lowered their repo-linked external benchmark lending rate (EBLR) by 25 basis points.
However, it noted that the marginal cost of funds-based lending rate (MCLR), which has a longer reset period and is influenced by the cost of funds, may take more time to adjust.
During 2024-25, headline inflation moderated further, although the disinflationary trend was disrupted by volatile and elevated food inflation.
The central bank added that the liquidity conditions, which were in surplus from August to November 2024, moved into deficit during December to February, before returning to surplus by March-end.
The RBI's proactive liquidity and rate management signals its continued focus on balancing growth and inflation in a dynamic economic environment.
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