New Delhi | (Economy India)
Global credit rating agency Fitch Ratings has said that the Reserve Bank of India’s (RBI) commitment to maintaining ample liquidity in the banking system will aid the smooth transmission of a likely 1% interest rate cut expected in 2025.
Fitch, in its latest report released on Wednesday, observed that the RBI’s liquidity infusion at the start of 2025—mainly through the purchase of government securities—amounts to approximately ₹5.6 lakh crore, representing about 2% of banking system assets.
This intervention has led to a liquidity surplus in the system since March 2025, which Fitch believes will strengthen the monetary policy transmission mechanism.
“The RBI’s clear stance on ensuring sufficient banking system liquidity increases the likelihood that rate cuts will be more effectively passed on to borrowers,” Fitch stated.
🔍 Context: Monetary Policy and Market Outlook
The RBI has not yet officially cut policy rates in 2025, but market participants expect a 100 basis point (1%) reduction during the year as inflation moderates and global financial conditions ease.
Fitch emphasized that the RBI’s forward guidance, coupled with open market operations, suggests a proactive approach to supporting credit growth, especially as economic activity normalizes post-global uncertainty.
“Systemic liquidity management will be crucial in ensuring credit flow to productive sectors,” the agency noted.
📊 Impact on Borrowers and Banks
A well-lubricated financial system ensures that rate reductions by the central bank are more quickly reflected in lending and deposit rates offered by commercial banks. This could help lower borrowing costs for consumers and businesses alike.
The RBI’s liquidity support may also ease bond yields, further lowering the cost of government and corporate borrowing in the market.
(Economy India)
