The systemic liquidity surplus has cooled in September 2025 after remaining sizeable during June-August 2025, largely dampened by advance tax outflows. After injecting Rs. 0.6 trillion in the first tranche, the pending cash reserve ratio (CRR) cut of 75 bps during October-November 2025 is likely to support liquidity conditions, offsetting the pressure from currency leakage during the festive season, even as the RBI may continue to conduct Variable Rate Repos (VRR) to manage intermittent tightness. The Monetary Policy Committee (MPC) is likely to maintain status quo on rates in October 2025, although it may pare its inflation forecasts to factor in the impact of the GST rejig. ICRA expects India’s 10Y G-sec yield to trade at 6.40-6.60% in the near term, amid expectations that the Centre will stick to its borrowing plan for FY2026. With long-term yields likely to remain sticky amid fiscal concerns, expectations of an extended pause on rate cuts, and the prevailing demand-supply concerns, the yield curve may remain steep in the near term.

• Liquidity to remain comfortable in near term: Liquidity conditions have remained comfortable since June 2025, with average systemic liquidity surplus rising from 0.7% of net demand and time liabilities (NDTL) in May 2025 to 1.2-1.3% of NDTL in each of the months during June-August 2025, aided by the RBI’s measures. Thereafter, it has cooled in September 2025 (+0.7% of NDTL), largely owing to advance tax and GST payments, notwithstanding the CRR cut-led infusion of ~Rs. 0.6 trillion in the early part of the month. The durable liquidity surplus also remains quite ample, although the extent of the same eased mildly to Rs. 4.7 trillion as on September 5, 2025, from Rs. 5.8 trillion as on June 27, 2025. Notwithstanding the intermittent tightness, liquidity conditions are expected to remain benign in the near term, aided by the pending CRR cut of 75 bps during October-November 2025 and redemption of G-secs worth ~Rs. 1.0 trillion in early-November 2025, which would ease pressure of higher cash demand during the festive season.
• Further transmission of rate cuts to lending rates may remain limited in near term: While the transmission of the cumulative 100 bps rate cut during February-June 2025 to fresh deposits (-94 bps during February 2025-July 2025) is nearly complete, that to outstanding deposits has been quite muted (-18 bps). Similarly, while the weighted average lending rates on fresh loans fell by 60 bps in February-July 2025, that for outstanding loans eased by 42 bps. Going ahead, the muted pace of repricing of the older deposit base as well as the expected uptick in credit demand during the festive season, is likely to constrain further transmission to lending rates over the next few months.

EXHIBIT: Monthly trends in average systemic liquidity

Data for September 2025 is till September 24; Source: RBI; CEIC; ICRA Research