RBI to Infuse ₹3 Trillion Liquidity After Rupee Defence

Context:

The Reserve Bank of India (RBI) is set to inject around ₹3 trillion of durable liquidity into the banking system to offset the tightening impact of its recent foreign-exchange intervention aimed at supporting the rupee.

Why Liquidity Tightened

• RBI intervention strengthened the rupee from ₹91/$ to ₹89/$
• While stabilising the currency, this sucked rupee liquidity out of the banking system
• As a result, system liquidity conditions tightened despite a recent 25 basis point repo rate cut

What RBI Has Done So Far

• Open Market Operations (OMOs)
• Forex buy-sell swaps

This shifted liquidity from a persistent deficit (since mid-December 2024) to a surplus by end-March 2025.

Open Market Operations (OMOs)

OMOs are when the RBI buys or sells government bonds in the market.

Why RBI does this

• To control money (liquidity) in the banking system
• To influence interest rates

How it works

• RBI buys bonds → money goes into banks → liquidity increases
• RBI sells bonds → money goes out of banks → liquidity decreases

Simple example

If banks don’t have enough money to lend, RBI buys bonds from them and gives them cash.

Forex Buy–Sell Swaps

RBI exchanges dollars and rupees with banks, with an agreement to reverse the deal later.

Why RBI uses swaps

• To manage rupee liquidity
• To control pressure on the rupee
• To avoid sudden shocks in the forex market

How it works

• RBI buys dollars and gives rupees → rupee liquidity increases
• Later, RBI returns dollars and takes back rupees

Simple example

Think of it as RBI giving banks rupees temporarily, while holding dollars as security.