By CIO Insider Team
 

On a review of current liquidity and financial conditions, the Reserve Bank of India (RBI) announced to conduct Open Market Operation (OMO) purchase auctions of Government of India securities for an aggregate amount of Rs 2,00,000 crore Buy/Sell Swap auction of $10 billion for a tenor of 3 years to inject liquidity into the banking system.

The move comes at a time when liquidity conditions in the banking system have tightened. According to the latest data, net system liquidity stood in deficit at Rs 54,851 crore as of Monday.

Market participants said the RBI’s action was widely anticipated, with expectations of at least Rs 2 lakh crore in liquidity injection even before the central bank intervened in the foreign exchange market last week.

The primary objective of the measures is to offset liquidity drained by recent forex interventions as well as seasonal pressures such as advance tax outflows and a rise in currency in circulation. Last week, the RBI sold dollars aggressively to curb sharp depreciation in the rupee, which had come under pressure amid uncertainty over a potential trade deal with the United States and sustained foreign portfolio investor (FPI) outflows from equity and debt markets.

The intervention helped the rupee strengthen from around 91 per dollar to 89 but also absorbed rupee liquidity from the system.

The RBI had earlier reassured markets about its liquidity stance. In the recent monetary policy meeting, Governor Sanjay Malhotra said the central bank would ensure adequate liquidity in the system even without explicitly targeting a surplus of around 1 percent of net demand and time liabilities (NDTL).

So far in December, the central bank has infused Rs 1.45 lakh of durable liquidity through open market purchases and foreign exchange buy-sell swaps.

Bond market participants noted that OMO purchases in more liquid securities would enhance participation and improve price discovery, as operations in illiquid bonds often clear 2–5 basis points above prevailing market levels, reducing their overall effectiveness.

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During the first half of 2025, the RBI injected Rs 9.5 lakh crore of durable liquidity into the banking system, helping shift conditions from a prolonged deficit since mid-December 2024 to a surplus by the end of March 2025.

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Of this total, Rs 5.2 lakh crore was provided through open market operations, while long-term variable rate repo auctions and USD/INR buy-sell swaps contributed Rs 2.1 Lakh crore and Rs 2.2 lakh crore, respectively.