RBI Announces Rs 1 Lakh Crore Bond Purchases, $10 Billion Swap to Boost Liquidity
The Reserve Bank of India (RBI) unveiled major liquidity measures, including open market operation (OMO) purchase auctions worth Rs 1 lakh crore and a USD/INR buy/sell swap auction of $10 billion, to ease the ongoing liquidity deficit in the banking system.
The central bank will conduct two OMO purchase auctions of government securities, each valued at Rs 50,000 crore, on March 12 and March 18. Additionally, a $10 billion forex swap auction for a 36-month tenor is scheduled for March 24.
“The Reserve Bank will continue to monitor evolving liquidity and market conditions and take measures as appropriate to ensure orderly liquidity conditions,” the RBI stated.
This move follows an SBI Research report highlighting the need for a Rs 1 lakh crore liquidity injection by March-end to address systemic tightness caused by tax outflows, forex interventions, and capital market volatility. The liquidity deficit surged from rs 65,000 crore in December 2024 to Rs 2.07 lakh crore in January 2025, before easing slightly to Rs 1.59 lakh crore in February.
To manage the crunch, the RBI has used tools like variable rate repo (VRR) auctions since January 16, OMOs, and a 25 basis points repo rate cut. The recent $10 billion forex swap, the largest ever by the RBI, provided durable liquidity support.
Despite these measures, bond markets remain stressed. Corporate bond yields and certificate of deposit (CD) rates continue to stay elevated, with the spread between the repo rate and corporate bond yields widening to 125 basis points, while the spread with 3-month CDs surged to 119 basis points in February.
State government securities (SGS) have also been impacted, with their spread over central government securities (G-secs) increasing from 30-35 basis points to 45-50 basis points, despite the rate cuts. SBI Research suggested that targeted OMOs for SGSs might be necessary to narrow spreads and enhance monetary policy transmission.
“We believe that OMOs in SGSs should be considered to smoothen and harmonize spreads,” the report noted.
The RBI's decisive action signals its commitment to maintaining market stability and supporting credit flow as the financial year draws to a close. Market participants will closely watch upcoming auctions for signs of easing pressures and improved liquidity conditions.
