SYLLABUS

GS-3: Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.

Context: The Reserve Bank of India (RBI) will inject nearly Rs 3 trillion through open market operations (OMOs) and a USD/INR buy-sell swap to offset liquidity drained by forex intervention and seasonal factors.

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• These steps come in the context of rupee pressures, driven by global factors such as U.S. tariff actions and capital flow dynamics, which prompted RBI intervention through dollar sales to stabilise the currency.

• During the recent monetary policy meeting, RBI Governor Sanjay Malhotra had assured markets that the central bank would ensure adequate liquidity in the financial system.

• He had indicated that liquidity support would continue even without formally targeting a surplus level of around one percent of net demand and time liabilities. 

Key Highlights of RBI’s Proposed Plan:

• RBI will purchase government securities worth 2 trillion rupees through OMOs.

o These purchases will be conducted in four equal tranches of 50 thousand crore rupees each on December 29, January 5, January 12 and January 22, 2026. 

• In addition, RBI will undertake a three-year US Dollar/Rupee buy-sell swap of 10 billion dollars on January 13, 2026.

Recent Forex Interventions and Liquidity Context

Significance of the plan:

• Neutralise the negative liquidity impact of forex intervention: The RBI’s decision to inject nearly ₹3 trillion of liquidity is primarily aimed at offsetting the drain caused by recent forex interventions, along with seasonal pressures such as advance tax outflows and a rise in currency in circulation.

• Strengthening Bond market: Conducting OMO purchases in more liquid securities would help improve participation and price discovery in Bond market. 

• Ease tight liquidity conditions: The intervention will strengthen the Indian Rupee, which had come under pressure amid uncertainty surrounding a trade deal with the US and persistent foreign portfolio investor outflows from equity and debt markets.

• Aligning short-term interest rates with the policy corridor: The liquidity injection is expected to accelerate policy rate transmission and spur credit offtake.