RBI's ₹2.9 Lakh Crore Liquidity Plan for Early 2026

Introduction

The Reserve Bank of India (RBI) announced a significant liquidity infusion of ₹2.90 lakh crore on December 23, 2025, to address tightening cash conditions within the Indian banking system. This proactive measure aims to ensure financial stability, support credit growth, and manage volatility in money and foreign exchange markets as the financial year-end approaches. The central bank will employ a combination of Open Market Operations (OMOs) and a US dollar-rupee currency swap to inject these funds.

Understanding the Need for Intervention

In late 2025, the Indian financial system experienced a noticeable liquidity crunch. The system-wide liquidity shifted into a deficit, recorded at approximately ₹54,852 crore as of December 22. This shortage was primarily driven by seasonal outflows, including substantial payments for advance tax and Goods and Services Tax (GST), which drained cash reserves from commercial banks. When liquidity tightens, short-term borrowing rates, such as the weighted average call rate, tend to rise above the RBI's policy repo rate. This signals stress in the interbank lending market and can hinder the smooth transmission of monetary policy, prompting central bank intervention to restore balance.

A Two-Pronged Strategy for Liquidity Infusion

The RBI has structured its ₹2.90 lakh crore plan around two distinct but complementary tools to ensure the injection of durable liquidity. This approach addresses both domestic currency needs and foreign exchange market dynamics simultaneously.

The first component involves the purchase of government securities (G-secs) worth ₹2 lakh crore through Open Market Operations. In an OMO purchase, the RBI buys government bonds from commercial banks, paying them in cash. This directly increases the funds available to banks, which they can then use for lending or to meet their reserve requirements. This is a standard and effective tool for managing systemic liquidity over a longer term.

The second component is a $10 billion USD/INR buy/sell swap auction, which will inject the rupee equivalent of approximately ₹90,000 crore. Under this three-year swap, the RBI will buy US dollars from banks in exchange for rupees immediately and agree to sell those dollars back at a future date. This mechanism not only injects rupee liquidity but also helps absorb excess dollar liquidity, thereby stabilizing the foreign exchange forward market and reducing pressure on the rupee.

Scheduled Implementation Plan

The RBI has laid out a clear timeline for these operations to ensure a calibrated and predictable infusion of funds into the system. The OMO purchases are divided into four equal parts, while the currency swap is a one-time auction.

Immediate Impact on Financial Markets

The announcement was met with a positive response from financial markets, particularly the bond market. Yields on government securities eased following the news, reflecting expectations of increased demand for bonds from the RBI and improved liquidity conditions. A fall in bond yields lowers the borrowing costs for the government and can also lead to reduced borrowing costs for corporations that issue their own debt. The move also helped calm the short-term money markets, where rates had been under upward pressure due to the cash deficit.

Benefits for the Banking Sector

For commercial banks and non-banking financial companies (NBFCs), this liquidity injection provides significant relief. It lowers their cost of funds, as they become less reliant on expensive overnight borrowing from the call money market or the RBI's repo window. With improved access to liquidity, banks are better positioned to maintain and expand their lending activities. This is crucial for supporting credit flow to vital sectors of the economy, including Micro, Small, and Medium Enterprises (MSMEs), housing, and infrastructure projects, which depend on stable and predictable credit conditions.

Supporting Rupee Stability

The use of a USD/INR swap is a strategic choice that addresses multiple objectives. By buying dollars in the near term, the RBI can bolster its foreign exchange reserves without resorting to direct spot market interventions, which can sometimes create market volatility. This action helps manage the forward premiums in the currency market and provides a tool to smooth out sharp movements in the rupee's value against the US dollar. This dual-purpose tool separates domestic liquidity management from the RBI's currency defence strategy, allowing it to pursue both goals effectively.

Conclusion: A Proactive Stance on Financial Stability

The RBI's decision to inject ₹2.90 lakh crore is a major liquidity management operation that underscores its commitment to maintaining financial stability. By using a mix of OMOs and currency swaps, the central bank is addressing both immediate cash shortages and the need for durable liquidity. This move is expected to stabilize money markets, boost bond market confidence, and ensure that credit remains available to support India's economic activity. As these measures are implemented, the market will continue to watch how the RBI balances its objectives of supporting growth and managing inflation in the coming months.