It was crucial for everyone to pay attention to the repo rate headlines after the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) meeting, held between August 4 and August 6, which focused on the decision to keep it unchanged at 5.5%.  

However, the minutes of the MPC, published on August 20, 2025, suggest that a more consequential move is pending, specifically a 100-basis-point cut in the Cash Reserve Ratio (CRR), which is expected to take effect in September.

According to the minutes of the MPC, two of the members said that the upcoming CRR change will have a significant impact on liquidity in the financial system. 

Saugata Bhattacharya mentioned in his statement that the policy repo rate has been reduced by 100 basis points over five months. "Average system liquidity has remained at a Rs 3 lakh crore surplus since the June 2025 MPC meeting, and the pre-emptive guidance of a 100-basis-point cut in the CRR starting September is expected to maintain surplus liquidity," she observed.

Furthermore, Dr Rajiv Ranjan, talking about the impending CRR cut, stated: “On the other hand, the arguments to maintain the status quo regarding the policy rate and stance appeared stronger due to the following. First, the recent monetary easing cycle has already resulted in a front-loaded 100-basis-point rate cut since February 2025... The effects of the earlier CRR cut will also become evident from September 2025.”

What Ranjan is pointing out is that although a cut of 100 basis points for the repo rate, which has been going on since February, is still working their way through the system and the additional liquidity infusion via the CRR route would amplify the effect during the festive season.

It is to be noted that the reduction in CRR will be implemented in four equal tranches of 25 basis points each. The first of it will begin on September 6, October 4, November 1, and then on November 29, 2025. This means that before Diwali, 50 basis points of liquidity will be infused into the system.

Unlike repo rate changes, which are transmitted gradually to lending and deposit rates, CRR reductions have an immediate impact on the Indian economy.

According to reports, releasing one percentage point of banks’ deposits previously held with the RBI could free up around ₹2.5 lakh crore for lending.

The infusion of credit would coincide with the high-demand festival season from October to December, potentially boosting retail borrowing, MSME working capital flows, and consumer spending.

RBI Governor Sanjay Malhotra, while voting to keep rates unchanged, said, "Monetary policy transmission of the cumulative 100 basis points cut in the policy rate since February 2025, though hastened due to various measures, is still continuing. The CRR cut, which is likely to take effect from next month, will also facilitate further monetary transmission and stimulate economic activity. He said that with the CRR cut set to take effect in September, transmission may soon receive a powerful boost."

For now, repo rates may headline the news. However, the September CRR change, hidden in the fine print of the MPC minutes, could be the true liquidity story of 2025.