Mint Primer | RBI’s ₹1.5 trillion liquidity boost: How will it help?

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Subscribe to enjoy similar stories. The Reserve Bank of India (RBI) has announced a set of forex and money market measures that will collectively infuse ₹1.5 trillion over time, amid a clamour for liquidity from multiple bankers and money market participants. Mint explains the implications of the move.

Banking liquidity has been in a deficit of more than ₹1 trillion since mid-December 2024, after being in surplus between July and November. Average liquidity deficit in the interbank market crossed ₹3.3 trillion last week, thanks to heavy goods and services tax (GST) outflows. The liquidity deficit has been primarily because of RBI intervening heavily in the forex market to shore up the rupee over the last two years.

However, the currency began depreciating sharply since September, as foreign portfolio investors aggressively sold Indian stocks. The deficit was also partly driven by slow government spending. RBI announced three measures to boost liquidity.

Firstly, the central bank said it will purchase government securities (G-Secs) worth ₹60,000 crore through open market operations (OMOs) in three tranches of ₹20,000 crore each. It will also conduct a 56-day variable rate repo (VRR) auction of ₹50,000 crore on 7 February and dollar-rupee sell swap auction of $5 billion for a tenor of six months on 31 January. Under the dollar-rupee swap, RBI will buy dollars from banks in exchange for rupee, which will release ₹43,000 crore of liquidity into the system.