The Reserve Bank of India (RBI) plans to decrease the cash reserve ratio (CRR) in order to inject lasting liquidity into the banking system. This move is in response to anticipated outflows caused by goods and services tax and advance payments this month.

The reduction in CRR is expected to act as a safeguard against foreign investor withdrawals from the equity market, which typically put downward pressure on the Indian rupee. The RBI's decision will take effect on December 14 and December 28, 2024, and will inject approximately Rs 1.16 lakh crore into the banking system through two 25 basis point tranches. The aim of this adjustment is to mitigate the impact of foreign exchange market volatility, as interventions by the central bank to stabilize the rupee often result in reduced liquidity in the banking sector.

The RBI's decision to decrease the CRR is a strategic move to address the potential outflows caused by goods and services tax and advance payments. By injecting liquidity into the banking system, the central bank aims to protect against foreign investor withdrawals and stabilize the Indian rupee. This adjustment will take effect on December 14 and December 28, 2024, and will inject approximately Rs 1.16 lakh crore into the banking system through two 25 basis point tranches. The ultimate goal is to mitigate the impact of foreign exchange market volatility and maintain liquidity in the banking sector.