RBI's Big Liquidity Boost: Rs 1 lakh-crore OMO purchases, USD/INR swap—A point-by-point summary

The Reserve Bank of India (RBI) on Friday cut the repo rate -- the key interest rate at which the RBI lends money to commercial banks -- by 25 basis points to 5.25 per cent, and lined up a slew of fresh steps aimed at improving domestic liquidity conditions. Governor Sanjay Malhotra announced open market operations (OMO) and a forex swap -- both set to take place in the last month of the year.

The RBI noted that system liquidity stood at an average surplus of Rs 1.5 lakh crore for the period since the October MPC review.

"I would like to reiterate that we are committed to provide sufficient durable liquidity to the banking system. We continuously assess the durable liquidity requirements of the banking system due to changes in currency in circulation, forex operations, and reserve maintenance. Going forward too, we shall continue to do so," said Malhotra.

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Rs 1 lakh crore GSec buys

The RBI committed to purchasing government bonds (also known as GSecs) to the tune of Rs 1 lakh crore this month. in two tranches of Rs 50,000 crore each.

$5-billion rupee-dollar swap

The central bank will conduct a USD/INR buy/sell swap worth $5 billion on December 16.

The swap -- a special tool that enables two parties to exchange equivalent amounts of different currencies and then reverse the exchange at a later date -- will have a tenor of three years.

A currency swap is an effective liquidity management and risk hedging tool.

The liquidity measures follow a review of prevailing liquidity and financial conditions, and are aimed at ensuring “orderly liquidity management” through December, noted the central bank.

RBI Monetary Policy: Key liquidity announcements on December 5

• Two OMO purchase auctions totalling Rs 1,00,000 crore
  • Rs 50,000 crore auction on December 11
  • Rs 50,000 crore auction on December 18

The RBI also said it will continue to monitor market conditions and take further measures as and when needed.

Why OMO matters

The central bank has been prioritising liquidity infusion as durable liquidity in the system continues to be strained.

An OMO purchase enables a central bank to inject liquidity by buying government securities from the market.

Here's how it helps:

• It maintains liquidity and reduces funding stress in the system
• It is positive for banks and NBFCs
• It helps stabilise yields (lowering borrowing costs for the financial space)

OMO announcements in 2025 so far

• January 27: Rs 1,00,000 crore across 3 tranches (Jan 30, Feb 13, Feb 20)
• March 5: Rs 1,00,000 crore across 2 tranches (March 12-18)
• March 18: Rs 50,000 crore in 1 tranche (March 25)
• April 1: Rs 80,000 crore across 4 tranches (April 3, 8, 22, 29)
• April 28: Rs 1,25,000 crore across 3 tranches (May 9, 15, 19)
• December 5: Rs 1,00,000 crore across 2 tranches (Dec 11, Dec 18)