The Reserve Bank of India announced a comprehensive package of liquidity infusion measures on Friday, signaling a proactive approach to address tightening conditions in the banking system. The central bank's multi-instrument strategy aims to inject substantial funds into the financial system over the coming weeks to ensure orderly market functioning.

Following a detailed review of prevailing liquidity and financial market conditions, the RBI outlined specific measures designed to ease pressure on banks and stabilize money market operations. The announcement comes as market participants have been closely monitoring liquidity conditions after sustained government cash balances, tax outflows, and forex market operations contributed to tighter surplus liquidity in recent weeks.

Variable Rate Repo Operations

The central bank will conduct a 90-day Variable Rate Repo operation worth ₹25,000 crore on January 30. This measure allows banks to borrow funds at market-determined rates for a significantly longer tenor than the typical overnight liquidity windows, providing more stable funding options for financial institutions.

Foreign Exchange Swap Operations

In a significant dollar liquidity initiative, the RBI will hold a USD/INR buy-sell swap auction of USD 10 billion on February 4, structured with a three-year tenor. These swap operations typically serve dual purposes of easing domestic liquidity pressure while managing volatility in the foreign exchange market.

Open Market Operations

The Reserve Bank will implement open market operation purchase auctions of Government of India securities totaling ₹1 trillion in aggregate value. The substantial securities purchase program will be executed through a structured approach across multiple dates.

Market Impact and Objectives

The RBI's comprehensive liquidity package is expected to deliver multiple benefits to the financial system:

• Improve durable liquidity conditions across banking institutions
• Support enhanced credit flow to various sectors
• Stabilize short-term money market rates
• Ensure orderly functioning of financial markets

The central bank emphasized its commitment to flexible liquidity management, stating it will "continue to monitor evolving liquidity and market conditions and take measures as appropriate to ensure orderly liquidity conditions." Detailed operational instructions for each measure will be issued separately to market participants.

Strategic Approach

The announcement demonstrates the RBI's strategic approach to monetary policy implementation, utilizing targeted liquidity tools rather than broad policy rate adjustments to address short-term market stress. This methodology allows the central bank to maintain its established stance on inflation control while addressing specific liquidity challenges through precise interventions. The coordinated timing of these operations across January and February reflects careful planning to maximize market impact and ensure sustained liquidity improvement.

The Reserve Bank of India has intensified its dollar sales as the rupee continues to face volatility, with net sales reaching $43.2 billion in the spot market till November 2025. This represents a significant 28% increase compared to the $34.5 billion sold during the entire FY25 period, highlighting the central bank's active intervention to stabilize the currency.

Spot Market Intervention Shows Mixed Trends

The pace of RBI's dollar sales in the spot market showed signs of moderation in November 2025, according to central bank data. Net dollar sales stood at $9.71 billion, declining from October's higher figure of $11.87 billion. Despite this month-on-month reduction, November's sales remained the second highest in FY26.

Forward Market Activity Remains Robust

While spot market sales moderated, the RBI's forward market transactions remained strong throughout the period. At the end of November 2025, the central bank had sold $66 billion in the forward market, primarily aimed at influencing future expectations on the rupee. This figure represented a nearly 4% increase compared to October 2025 levels.

Forward market transactions involve contracts where dollars are bought or sold for future delivery dates rather than immediate settlement, allowing the central bank to manage currency expectations over longer timeframes.

Policy Shift Reflects Economic Pressures

The intervention strategy marks a significant shift from previous fiscal years. In FY25, the Reserve Bank became a net seller of dollars, selling $34.5 billion in the spot market compared to net purchases of $41.2 billion in FY24. The forward market activity showed an even more dramatic change, with contract sales jumping to $84.3 billion in FY25 from just $0.5 billion in FY24.

Economic Challenges Drive Intervention

According to Abhishek Upadhyay, Senior Economist at I-Sec Primary Dealership, the intervention was necessitated by multiple economic pressures. "The intervention was forced to offset a poor balance of payments position that is likely to show a deficit for the second consecutive year, as well as to tackle weak sentiment stemming from high US tariffs that could be supporting speculative activity against the rupee," he explained.

The rupee's performance has been particularly challenging, with the currency breaching significant psychological levels of 90 and 91 in December 2025 and January 2026 respectively. These developments have prompted analysts to expect continued intervention trends as the central bank works to manage currency volatility and maintain financial stability.