Rupee Plunges to 91.97: RBI Steps In With Third Liquidity Package

Introduction

The Reserve Bank of India (RBI) has stepped in with its third liquidity support package after the Indian rupee fell to a historic low against the US dollar. The central bank announced measures totaling ₹75,000 crore to stabilize financial markets grappling with sustained foreign capital outflows and tightening liquidity conditions. This intervention underscores the growing pressure on the Indian economy as it navigates global headwinds.

Details of the Latest Intervention

The RBI's announcement on January 23, 2026, detailed a multi-pronged approach to inject liquidity into the banking system. The primary components include Open Market Operation (OMO) purchases of government securities worth ₹50,000 crore, scheduled in two equal tranches on February 5 and February 12. Additionally, the central bank will conduct a 90-day Variable Rate Repo (VRR) operation for ₹25,000 crore on January 30.

The VRR is a tool where banks can borrow funds from the RBI at interest rates determined through an auction, providing more flexibility than the fixed repo rate. The package also mentioned a three-year dollar-rupee swap auction scheduled for February 4. In its official statement, the RBI affirmed its commitment to "monitor evolving liquidity and market conditions and take measures as appropriate to ensure orderly liquidity conditions."

A Pattern of Escalating Support

This latest package is not an isolated event but part of a broader, escalating strategy by the central bank to manage market stress. It marks the third major intervention since December 2025, with the scale of support growing with each announcement. The first tranche in December involved ₹1 trillion in OMOs and a $1 billion swap. This was quickly followed by a second, larger package in late December that doubled the operations to ₹2 trillion in OMOs and a $10 billion swap auction for January.

The cumulative liquidity operations since December 2025 now total over ₹3 trillion, highlighting the severity of the liquidity crunch. RBI Governor Sanjay Malhotra had previously assured markets of the central bank's commitment to supporting system liquidity, and these actions align with that promise, even as specific forward guidance remains limited.

Rupee and Markets Under Severe Strain

The timing of the RBI's announcement was critical, coming on a day when the Indian rupee plunged to an unprecedented intraday low of 91.97 against the US dollar. Although it recovered marginally to close at 91.96, it still surpassed the previous record low of 91.75 set just two days earlier on January 21. The currency's weakness is a direct reflection of broader market turmoil.

A primary driver of this pressure has been the relentless selling by Foreign Institutional Investors (FIIs). In 2025 alone, FIIs have pulled out a net amount of ₹36,587 crore from Indian equities. This sustained outflow has weighed heavily on the stock market, with benchmark indices falling nearly 1% on the day of the announcement and closing the week with a loss of approximately 2.5%.

Systemic Pressures and Market Expectations

Despite the RBI's repeated interventions, market participants and economists continue to call for more durable and predictable liquidity solutions. The current tight conditions are exacerbated by the government's substantial borrowing program, which is expected to reach around ₹30 trillion from both central and state governments. This massive supply of government debt absorbs a significant amount of liquidity from the system.

In pre-policy discussions, economists urged the RBI to prioritize liquidity easing over further interest rate cuts. Key recommendations included publishing an indicative OMO calendar of up to ₹5 trillion for the next financial year and implementing longer-term repo operations to provide more sustained relief. Lenders have specifically pushed for OMOs of at least ₹3-5 lakh crore to lower bond yields and encourage credit growth.

Looking Ahead to the MPC Meeting

All eyes are now on the upcoming Monetary Policy Committee (MPC) meeting, scheduled for February 4-6, 2026. This will be the final policy review of the current financial year. The committee faces the complex task of balancing currency stability with the need to support economic growth. The RBI has already implemented a cumulative 25 basis points reduction in the policy repo rate since February 2025.

The decisions made at this meeting will provide crucial signals about the central bank's future policy direction. The market will be watching closely to see how the RBI addresses the persistent liquidity deficit, the rupee's volatility, and the ongoing pressure from foreign outflows, all while keeping inflation in check. The outcome will likely set the tone for Indian financial markets in the coming months.