RBI doubles liquidity push with ₹2 trillion OMO, $10 billion dollar-rupee swap

MUMBAI: In a surprise move, the Reserve Bank of India (RBI) on Tuesday said it will ramp up liquidity operations next week and in January with large-scale open market operations (OMOs) of ₹2 trillion and a dollar-rupee buy/sell swap auction of $10 billion, amid tight systemic liquidity and sustained pressure on the rupee

The intervention, double the size of similar operations announced earlier in December, comes as liquidity conditions are expected to remain stretched going into the new year.

The rupee, which traded at ₹89.56 to a dollar on 1 December, fell to ₹90.19 two days later and hit a record low of ₹91.07 on 17 December, according to Bloomberg data. The domestic currency ended at ₹89.6 on Tuesday.

“The announced OMOs help bridge near-term demand supply mismatches and should offer comfort to bond yields by improving liquidity visibility,” said VRC Reddy, head of treasury at Karur Vysya Bank.

“With these measures, market confidence is likely to improve, and the 10-year benchmark G-sec could gravitate toward the 6.50% zone, as liquidity conditions normalise and volatility subsides,” Reddy added.

The 10-year yield closed at 6.6328% on Tuesday.

After reviewing prevailing liquidity and financial conditions, the central bank on Tuesday said it will inject liquidity through outright purchases of government securities worth ₹2 trillion in four tranches of ₹50,000 crore each. These OMO purchase auctions will be conducted on 29 December, 5 January, 12 January and 22 January, it said in a press release.

In addition, the RBI announced a dollar-rupee buy/sell swap auction of $10 billion with a tenor of three years, scheduled for 13 January.

During the monetary policy announcement on 5 December, the RBI had said it would conduct OMO purchases worth ₹1 trillion and a dollar-rupee buy/sell swap of $5 billion. During the post policy conference, governor Sanjay Malhotra had reiterated the RBI's stance to supporting system liquidity but did not give any clear direction on future liquidity measures.

The size of the announced measures, however, were short of market expectations. “The announced primary liquidity infusion is constructive, albeit modestly below our expectation of ₹2 trillion for the rest of FY26,” said Madhavi Arora, chief economist at Emkay Global Financial Services.

Liquidity crunch

Market participants have been increasingly vocal about the need for durable liquidity infusion rather than reliance on short-term tools such as variable rate repo operations. As of 22 December, liquidity in the banking system was in a deficit of ₹54,852 crore.

“We had told the RBI to conduct a $5–10 billion one-month dollar-rupee buy/sell swap because the stress won’t go otherwise,” a senior treasury official said.

The OMO purchases are expected to provide direct and lasting liquidity to banks, while also helping lower government bond yields, which have remained elevated for the better part of the year. On Tuesday, the yield on the 10-year benchmark government bond ended at 6.65%, 15 basis points higher than on 5 December, when the Monetary Policy Committee cut the repo rate by 25 basis points.

Systemic liquidity has remained under strain due to a combination of factors, including persistent intervention by the RBI in the foreign exchange market to curb excessive volatility in the rupee, strong credit growth, and advance tax outflows. Continuous rupee depreciation has prompted the central bank to sell dollars intermittently, draining rupee liquidity from the system and pushing money market rates closer to the upper end of the policy corridor.

The Indian rupee ended at 89.6625 against the US dollar on Tuesday. It had hit a record low of 91.07 against the greenback on 17 December and has depreciated over 6% in 2025 due to consistent selling by foreign portfolio investors and a prolonged delay in the US–India trade deal.

Under OMO purchases, the central bank buys government bonds from banks and injects money into the banking system. Foreign exchange swaps, meanwhile, involve the RBI purchasing dollars from banks against rupees and selling them back at a later date, thereby infusing liquidity into the system.