Flow of liquidity.

In its December 2025 meeting, "The Reserve Bank of India (RBI) has slashed its repo rate by 25 basis points (bps) from 5.5% to 5.25%, but in the latest meeting in February, "The RBI has kept its key lending rate, known as the repo rate, unchanged at 5.25% in the first monetary policy decision since the budget." NDTV. "Given the impending revision in two key macroeconomic numbers - gross domestic product (GDP) estimates where the base year is to be brought forward to 2022-23 from 2011-12 at present and consumer price inflation (CPI), where the base is to be moved forward to 2024 from 2011-12 now - any other decision would have risked rocking the boat," wrote Mythili Bhusnurmath. In 2025, the RBI cut its policy rate by a total of 125 bps, from 6.5% to 5.25%, bringing the interest rate down by 105 bps on fresh bank loans and interest paid on fresh term deposits by 95 bps. ET. In addition, the RBI announced a reduction in the Cash Reserve Ratio (CRR) by 100 bps from 4% to 3% in tranches of 25 bps. This was expected to release Rs 2.5 trillion into the banking system. ET. This is the money commercial banks must deposit with the RBI without interest and cannot be used for lending or investment. (Kotak Bank). "According to the Economic Survey, average surplus liquidity in the system was a mind boggling 117 times that of the previous year." "What is left unsaid is that, as the government's debt manager, it will manage liquidity so that the government's borrowing goes through successfully and at a low cost." In its efforts to release more money into the system, the RBI has been buying government bonds. "The RBI has already stepped in aggressively this financial year, purchasing nearly Rs 7 trillion worth of bonds, a move that helped cap yields." Mint. By taking the government's debt on to itself the RBI is monetizing the fiscal deficit (BS). Creating fresh money to finance government spending is supposed to be inflationary but the RBI is probably reassured by the CPI inflation falling to an annualised rate of 1.33% in December 2025 (mospi.gov.in). In addition, "The Centre is budgeting a record Rs 3.16 trillion in dividend receipts from the RBI and public sector banks (PSBs) in 2026-27,..helping to keep the fiscal deficit under check. TOI. Last year, the RBI dished out a record Rs 2.68 trillion (newsonair.gov.in) and in 2023-24 it was another record Rs 2.11 trillion (Grip Investment). The bond market seems unimpressed with the RBI's liquidity flood. The benchmark 10-year bond yield is at 6.754%, down a tad from 6.769% on 02 February. investing.com. India's foreign exchange reserves may have been at a record $723.77 billion on 30 January (BS), but even this may not be enough if foreign investors take fright and the government runs up a big deficit because of loss of revenue from free trade agreements. The RBI was nationalised in 1949 (rbi.org.in), so it is paying the government. It is creating a flood of money but can it control the flood? Liquidity is liquid. It may flow out..