Mumbai: The Reserve Bank of India on Friday announced a major liquidity infusion plan, stating it will conduct Open Market Operation (OMO) purchases of government securities worth Rs 1 lakh crore in December, along with a three-year USD/INR buy-sell swap of $5 billion.
The twin measures aim to ensure adequate liquidity in the banking system, especially ahead of the outflows linked to the third instalment of advance tax due on December 15.
Announcing the Monetary Policy Committee’s decisions, RBI Governor Sanjay Malhotra said the moves are intended to inject durable liquidity and stabilise market conditions. “In view of the evolving liquidity conditions and the outlook, the Reserve Bank has decided to conduct OMO purchases of gov-ernment securities of Rs 1,00,000 crore and a 3-year USD/INR buy-sell swap of $5 billion this month,” he said.
Despite intermittent tightness, system liquidity has largely remained in surplus. Malhotra noted that the average net surplus under the Liquidity Adjustment Facility (LAF) was Rs 1.5 lakh crore since the MPC’s October meeting. The RBI absorbed an average of Rs 2.9 lakh crore daily in August and Rs 1.6 lakh crore in September. Net absorption dipped to Rs 0.9 lakh crore in October but subsequently improved to Rs 1.9 lakh crore in November and stood at Rs 2.6 lakh crore as of December 3.
Reassuring markets, Malhotra said the RBI is committed to maintaining adequate durable liquidity, ad-justing for shifts in currency in circulation, forex operations and reserve requirements. He emphasised that long-term OMO actions and short-term liquidity tools serve distinct purposes. “While purchase (sale) under OMO provides (absorbs) durable liquidity, repo operations under LAF manage transient liquidity to align the Weighted Average Call Rate with the policy repo rate,” he explained.
It is therefore possible, he said, for the RBI to inject durable liquidity via OMOs while simultaneously absorbing short-term liquidity through variable rate reverse repo (VRRR) operations. Such parallel ac-tions reflect the central bank’s approach to balancing structural liquidity needs with day-to-day market conditions.
Malhotra reiterated that the policy repo rate remains the RBI’s primary monetary policy instrument. While short-term rate movements are expected to transmit across the yield curve, OMOs are aimed purely at liquidity management and not at directly steering government securities yields.