Mumbai, Dec 23 (NationPress) The Reserve Bank of India (RBI) has unveiled a new strategy to inject a substantial amount of liquidity into the banking sector to alleviate the prevailing tight conditions. Through a combination of open market operations (OMOs) and a foreign exchange swap, the central bank aims to augment the system by approximately Rs 3 trillion in the upcoming weeks.

In this initiative, the RBI plans to purchase government bonds amounting to Rs 2 trillion via OMOs.

These transactions will occur in four equal installments of Rs 50,000 crore each on December 29, January 5, January 12, and January 22.

Furthermore, the central bank will execute a three-year USD/INR buy-sell swap of $10 billion on January 13, which is expected to further enhance rupee liquidity in the banking framework.

Market analysts indicated that such a substantial liquidity boost was anticipated even before the RBI's recent dollar sales in the foreign exchange market.

The primary cause of the liquidity crunch is attributed to the RBI's recent actions in the currency market. Last week, the central bank aggressively sold dollars to stave off a steep decline in the rupee, which had weakened amid uncertainty regarding a potential trade agreement with the US and ongoing foreign investor exits from the Indian equity and debt markets.

Market observers view the RBI's latest intervention as timely and adequate for the moment. They noted that any further measures would depend on the evolution of liquidity conditions and whether additional interventions in the forex market might be necessary. Should pressures persist, more actions could be taken in the fourth quarter.

During the recent monetary policy meeting, RBI Governor Sanjay Malhotra reassured stakeholders that the central bank would maintain sufficient liquidity in the banking sector.

He emphasized that this support would continue even without a formal target for surplus levels around 1 percent of net demand and time liabilities.

Up to now in December, the RBI has already introduced approximately Rs 1.45 trillion of durable liquidity through a blend of bond acquisitions and forex swaps.

Bond market participants mentioned that if OMOs are carried out in more liquid government securities, it could enhance participation and facilitate improved price discovery.

When illiquid bonds are utilized, banks tend to bid at higher rates to secure gains, thus diminishing the effectiveness of such operations.

Earlier this year, the RBI had implemented even larger liquidity support measures, injecting around Rs 9.5 trillion into the banking system during the first half of the calendar year.

This intervention helped transition liquidity conditions from a prolonged deficit since mid-December 2024 to a surplus by the end of March 2025. The majority of this support was provided through open market purchases, alongside long-term repo operations and USD/INR buy-sell swaps.