There appears to be limited room for further easing after the Reserve Bank of India has lowered its benchmark reporting rates more than expected and cut its reserve ratio requirements for injecting cash into the banking system. According to UBS Global Research, central banks also change their attitude from “accommodation” to “neutral” also supports this case.
RBI reduced the reporting rate to 5.5% to 50 basis points at the end of its three-day policy meeting on June 6th. So far, cumulatively, the central bank has achieved 100 bps reductions.
Gov. Sanjay Malhotra also said that after reducing the reporate by 100 bps, there is limited space left to support growth. Therefore, the Monetary Policy Committee has changed its stance to neutral, UBS Global Studies said.
To provide sufficient liquidity to support policy communication, the central bank reduced its cash reserve ratio from 4% to 3%. This will be carried out in four tranches each affecting 25 bps, the broker said. The reduction will inject 2.5 crore liquidity into the Indian banking system by December 2025.
Meanwhile, intersystem liquidity is already surplus of 1% of net demand and time liabilities as of June 4th, but the call rate is hovering at the lower end of the liquidity adjustment facility corridor.
