In the June 2025 bi-monthly monetary policy review, RBI decided to reduce the CRR by 100 basis points (bps) to 3.0 per cent of Banks’ deposits in a staggered manner

Yields of Government Security (G-Secs) could get support from the liquidity that will be released into the banking system as the first of the four stage cash reserve ratio (CRR) cuts of 25 basis points each takes effect from the fortnight beginning September 6^th.

G-Sec yields got a leg up on Thursday as fears of the government borrowing more to overcome revenue shortfall due to GST rate cut receded, with the yield of the benchmark 10-year G-Sec (6.33 per cent GS2035) softening about 5 basis points to 6.49 per cent.

Yield of the 10-year G-Sec thawed about 2 bps to 6.47 per cent on Friday, tracking decline in US Treasury yields.

K Arvind, Executive Vice President (Head-Treasury), Tamilnad Mercantile Bank, said the CRR cuts, which will release liquidity for banks. will be positive for G-Sec yields.

However, the effect of maturing dollar/ rupee buy-sell swap auctions the RBI conducted earlier needs to be watched as liquidity will get sucked out.

In the June 2025 bi-monthly monetary policy review, RBI decided to reduce the CRR by 100 basis points (bps) to 3.0 per cent of Banks’ deposits in a staggered manner.

This reduction will be carried out in four equal tranches of 25 bps each with effect from the fortnights beginning September 6, October 4, November 1 and November 29, 2025.

The cut in CRR would release primary liquidity of about ₹2.5 lakh crore to the banking system by December 2025.

So, liquidity amounting to ₹62.500 crore will get released into the banking system in the fortnight beginning September 6^th. This will add to the existing pool of surplus liquidity amounting to about ₹3 lakh crore in the banking system.

Market experts said that the yield of the 10-year benchmark paper could soften to 6.30-6.40 per cent level as CRR cuts take effect.

Soumyajit Niyogi, Director – Core Analytical Group, India Ratings & Research, noted that the domestic banking system liquidity remained in surplus for the fifth consecutive month.

“While the overall liquidity is expected to remain in surplus, the magnitude may moderate due to modest pressures from the balance of payments—both current account deficit and capital flows—as well as increased currency demand during the festive season,” he said.

“On the other hand, the upcoming maturity of forex swaps is likely to be offset by the Reserve Bank of India’s surplus transfer to the government and the scheduled reduction in the cash reserve ratio , providing a counterbalance to liquidity tightening forces,” Niyogi said.

Published on September 5, 2025