RBI Injects Rs. 50,000 Cr Liquidity Via Bond Buy

On Thursday, the Reserve Bank of India participated in an open market operation by purchasing Rs 50,000 crore (USD 5.5 billion) in bonds. The auction is the first of its kind since May and is part of a broader effort to inject liquidity of Rs 1,00,000 crore (~$12 billion) into the economy in December, which will be supported by a $5 billion foreign exchange swap. Bond cutoff prices for bonds maturing between 2029 and 2050 exceeded Bloomberg poll estimates, which led to a decrease in those bonds' yields after the announcement.

The intervention aims to replenish the liquidity that has been drained because of the RBI's actions to support the rupee, which is Asia's worst-performing currency this year. The benchmark 10-Year Government of India bond yields increased by nearly 12 basis points this week despite a quarter basis point cut in interest rates last week.

However, the yields have been lowered to approximately 6.63% as a result of this action. This move is meant to alleviate pressure on bond markets caused by the global repricing of interest rates, the anticipated pause in the Reserve Bank of India's domestic interest rate, and the misalignment of supply and demand in the bond market. So, the question remains, what does this liquidity injection signal for bond yields, rupee stability, and broader economic growth?

How Did RBI Manage Liquidity Earlier This Year?

The RBI made liquidity injections into the banking system in 2025 totalling ₹5.2 lakh crore, using a variety of methods of managing banking liquidity. The RBI’s purchase of ₹27,300 crore worth of bonds through screen-based operations in November 2025 was another example of its cash-management approach.

The implementation of these measures allowed RBI to enhance the timely transmission of monetary policy and support banks' ability to lend during periods of economic uncertainty. Recently, the RBI has intensified its focus on liquidity management practices under the leadership of Governor Sanjay Malhotra. The RBI reduced the repo rate by 25 basis points to 5.25%, aiming to boost liquidity and support economic growth in the context of low inflation and robust expansion.

What Changes Does This Auction Signal for Markets?

An auction indicating the Central Bank's willingness to consider durable options for providing liquidity to the financial system took place as the first OMO purchase (Open Market Operations). Market participants anticipate further purchases of Rs 50,000 Crores next week with particular emphasis on mid-dated bonds, such as the 10-year 6.33% 2035 bond.

• Experts, including VRC Reddy of Karur Vysya Bank, believe the 10-year yield may trend towards 6.50% by the end of December due to narrowing of the demand and supply gap.
• According to Madhavi Arora of Emkay Global, the Central Bank could inject up to Rs 80,000 crores into the economy in the first quarter of March based on the balance of payments and the scale of intervention in the foreign exchange market.
• Karyatt from DBS Bank stated that further OMOs and foreign exchange swaps could maintain overnight interest rates near to the repo rate. Currently, for this fiscal year, the total amount of government securities purchased for debt purposes has reached Rs 3.16 trillion, which represents a record amount.

Therefore, these actions support the Central Bank's commitment to maintain financial stability even when external forces place pressure on the financial system.

What Does This Mean for Bonds, Rupee, and Economy?

The bond markets are showing a good response to the monetary policy measures taken by the Reserve Bank of India. The nearly 5-basis-point drop in the 10-year bond yield comes as liquidity concerns begin to ease, giving investors more confidence in the outlook.

Through its recent measures the Reserve Bank of India is allowing for lower interest rates as a way to enhance banking liquidity and allow for increased credit availability for businesses and other sectors that are reliant on low-cost financing. Investors and analysts will be watching closely for any sustained expansion of open market operations (OMO) of around 1 lakh crore to 1.5 lakh crore rupees in early 2026 to help offset the excess of supply in the bond market.

It is crucial to question whether RBI will be able to work around ongoing OMOs to balance inflation control, credit growth, and currency defence amid global uncertainties.

References

Money Control
Trading Economics
Economic Times
Business Standard
MSN
Reuters