The Reserve Bank of India (RBI) on Thursday said it will continue to undertake liquidity management operations in line with its monetary policy stance, to ensure adequate liquidity in the banking system that supports the productive needs of the economy.
In its annual report for 2024-25, the central bank emphasised the importance of maintaining financial stability while supporting growth, particularly in the backdrop of easing inflation and moderate economic expansion.
With inflation easing below the target in February and March 2025, largely due to a sharp fall in food prices, the RBI said there is increased confidence in achieving a durable alignment with its medium-term inflation target of 4 per cent over a 12-month horizon.
Reflecting this, the Monetary Policy Committee (MPC) in April voted unanimously to cut the repo rate by 25 basis points to 6.0 per cent, and also shifted its policy stance from neutral to accommodative.
“Inflation converged towards the target during 2024-25, supported by easing input costs, proactive supply-side measures by the government, and the continued transmission of earlier monetary policy actions,” the RBI noted.
Headline inflation averaged 4.6 per cent in 2024-25, down from 5.4 per cent in the previous year. This was driven by a broad-based moderation in core inflation to 3.5 per cent and fuel deflation at 2.5 per cent, the report said.
Liquidity conditions remained in surplus throughout the year. The RBI reported that the average daily net absorption under the Liquidity Adjustment Facility (LAF) rose to Rs 1,605 crore in 2024-25, compared to Rs 485 crore in the previous year.
To manage both short-term and structural liquidity, the central bank undertook a series of market operations. These included open market purchases, USD/INR buy-sell swaps, and longer-tenor variable rate repos (VRR). Additionally, the Cash Reserve Ratio (CRR) was reduced by 50 basis points, in two tranches of 25 bps each, to inject durable liquidity into the system.
The RBI said it would continue to use a mix of instruments to manage both frictional and durable liquidity, while ensuring orderly movement of money market interest rates. It added that the current inflation outlook, combined with moderate growth, provides space for the monetary policy to remain supportive of growth, while staying alert to global uncertainties.
IANS