The Reserve Bank of India (RBI) plans to add about $32 billion of liquidity to the banking system over the next month to ensure enough cash is available and to keep interest rates stable.
According to Reuters, it will do this in two ways: First, by buying government bonds worth ₹2 trillion ($22.34 billion) between Dec. 29 and Jan. 22, 2026. This puts more rupees into the system.
And secondly, the RBI will conduct a $10 billion, 3-year dollar-rupee buy/sell swap on Jan. 13, which helps manage both dollar supply and rupee liquidity.
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“The intent is quite clear that the RBI wants to inject durable liquidity into the banking system,” said Sakshi Gupta, principal economist at HDFC Bank.
Gupta also said that seasonal factors and the central bank’s FX interventions have been a drag on rupee liquidity, and the size of the infusion should help sentiment in bonds in the near-term. Under Governor Sanjay Malhotra, the RBI has stepped up liquidity injections to reinforce the impact of recent rate cuts.
The increased rupee liquidity can put mild downward pressure on the rupee. If the rupee weakens, Non-Resident Indians (NRIs) may get more rupees for each dollar remitted, making remittances more attractive in the short term. A softer rupee often encourages higher remittances from NRIs, especially for investments, family support, or property purchases.
By easing liquidity conditions, the RBI may help keep domestic interest rates from rising sharply, which could limit upside in NRI deposit rates. The dollar-rupee swap helps manage volatility, reducing the risk of sharp currency swings that could otherwise affect remittance timing decisions.
The liquidity injection is expected to accelerate policy rate transmission and spur credit offtake. As liquidity rises, banks have more lendable resources, which typically pulls down short-term interest rates, keeps overnight rates aligned with the policy rate, and softens bond yields.
RBI had already infused 6.50 trillion rupees this calendar year via open market bond purchases–a record high–as well as conducted multiple dollar-rupee buy/sell swaps this year.
The most recent such buy/sell swap was a $5 billion 3-year swap conducted on Dec. 16.
“We would see the 10-year benchmark bond yield moving below the 6.60% mark in early trades tomorrow. Post that, the move will depend on the choice of papers for next week’s OMO,” a treasury head at a private sector bank said, referring to the impact of the liquidity measures. The 10-year yield closed at 6.6328% on Tuesday.
According to traders in the FX market, while the swap would help ease the sharp upwards momentum in forward premiums seen in recent days, it’s unlikely to address the immediate limitations around excess dollar liquidity heading into the year-end.
Sarvjit Singh Samra, CEO of Capital Small Finance Bank said “We expect the rate cut and OMO-driven liquidity infusion to improve portfolio transmission and create greater room to deepen lending to MSMEs, retail borrowers, and the rural economy. The neutral stance also brings policy predictability, enabling us to plan asset–liability strategies with more precision.”