NEW DELHI: The Reserve Bank of India (RBI) on Friday announced a two-pronged liquidity injection operation worth over Rs 1.6 lakh crore for the month of December. The move aims to support credit growth and reinforce the transmission of past policy rate cuts into the broader economy.
The central bank will conduct Open Market Operation (OMO) purchases of government securities worth Rs 1,00,000 crore in two equal tranches of Rs 50,000 crore each on December 11 and December 18. Simultaneously, it will undertake a 3-year USD/INR Buy/Sell Swap auction of $5 billion (approximately Rs 61,500 crore at current exchange rates) on December 16. These operations are designed to provide durable liquidity to the system.
The announcements were detailed by RBI Governor Sanjay Malhotra during his monetary policy review address, where he reiterated the central bank's commitment to maintaining sufficient system liquidity.
Governor Malhotra provided context, noting that system liquidity, as measured by the net position under the Liquidity Adjustment Facility (LAF), has remained in a comfortable average surplus of Rs 1.5 lakh crore since the last Monetary Policy Committee (MPC) meeting in October. He emphasized that the primary goal of OMOs is to manage this durable liquidity, distinct from the management of transient liquidity via short-term repo/reverse repo operations.
"I would like to reiterate that we are committed to provide sufficient durable liquidity to the banking system," stated Governor Malhotra. "These measures will ensure adequate durable liquidity in the system and further facilitate monetary transmission."
The Governor's statement highlighted that the cumulative 100 basis points (bps) reduction in the policy repo rate since February 2025 is steadily feeding through the financial system. The weighted average lending rate (WALR) on fresh rupee loans has declined by 69 bps, with an interest rate effect of 78 bps. Transmission has been broad-based across sectors.
On the deposit side, rates have softened more sharply for new deposits, with the weighted average domestic term deposit rate (WADTDR) on fresh deposits falling by 105 bps.
In a clarification aimed at market participants, Governor Malhotra distinguished between the objectives of different liquidity tools. He explained that while OMO purchases/sales are for managing durable liquidity, short-term operations like Variable Rate Reverse Repo (VRRR) are used to align the overnight call money rate (WACR) with the policy repo rate by managing transient liquidity.
"It is quite possible that we inject durable liquidity through purchase of government securities under OMO on the one hand while simultaneously withdrawing transient liquidity through a VRRR operation on the other hand," he stated, underscoring the operational flexibility of the RBI.
He also clarified that the "primary instrument of monetary policy is the policy repo rate," and that the "primary purpose of open market operations is to provide sufficient liquidity and not to directly influence G-sec yields," addressing any perceptions that OMOs are a direct tool for yield control.
