RBI Announces Major Liquidity Push to Support Rupee and Rate Transmission
The Reserve Bank of India has unveiled a fresh and sizeable liquidity infusion plan aimed at strengthening banking system liquidity and improving the effectiveness of past interest rate cuts. The measures come at a time when the rupee remains under pressure and market participants are seeking durable surplus liquidity.
Details of RBI’s Liquidity Measures
The central bank has announced three separate operations that together are expected to inject nearly ₹1.92 lakh crore into the financial system over the coming weeks.
- Open Market Operations (OMO): RBI will purchase government securities worth ₹1 lakh crore in two tranches of ₹50,000 crore each, scheduled for February 5 and February 12.
- Dollar-Rupee Buy-Sell Swap: A three-year swap of $10 billion will be conducted on February 4, infusing close to ₹92,000 crore of rupee liquidity.
- Variable Rate Repo: A 90-day repo operation amounting to ₹25,000 crore is slated for January 30.
These steps are designed to move system liquidity into a sustained surplus and ensure that earlier policy rate reductions are transmitted more effectively to lending and deposit rates.
Current Liquidity Position
Despite recent interventions, liquidity levels have remained modest. System liquidity averaged a surplus of ₹57,120 crore in January so far, compared with ₹72,549 crore in December.
Measured as a share of net demand and time liabilities (NDTL), liquidity stood at just 0.2% in January, down from 0.3% in December. Market participants believe this level is insufficient to drive strong credit growth or meaningful rate transmission.
Market Expectations and Outlook
Economists expect the latest measures to significantly improve liquidity conditions. Based on current estimates, the new operations could lift liquidity to around 0.9% of NDTL, provided there is no major absorption due to foreign exchange market interventions.
Analysts also anticipate that the central bank may need to continue open market purchases in the coming months. Expectations are building for additional OMOs during February and March, with further liquidity support likely in the next financial year.
Link to Monetary Policy Decision
The liquidity announcement comes just ahead of the upcoming monetary policy review, with the policy decision scheduled for February 6. Market participants see the measures as a clear signal that the central bank is focused on supporting growth while managing currency volatility.
Why This Matters for Investors
Improved liquidity typically lowers borrowing costs, supports bond prices, and enhances credit availability. For equity markets, durable surplus liquidity often acts as a positive trigger by improving risk appetite and easing financial conditions.
As the rupee faces global headwinds and domestic growth remains a priority, the RBI’s aggressive liquidity stance is being viewed as a proactive step to stabilize markets and reinforce monetary policy transmission.
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