The Reserve Bank of India announced on December 30 that it will conduct an Open Market Operations (OMO) purchase of government securities worth ₹50,000 crore on January 5, 2026. This initiative forms part of the central bank's broader strategy to inject durable liquidity into the banking system through systematic market interventions.

Securities Covered in January 5 Auction

The upcoming OMO will include seven government securities with varying maturity periods and coupon rates:

Auction Process and Requirements

Eligible participants must submit their bids electronically through the RBI's Core Banking Solution (E-Kuber) platform. Physical offers will only be accepted in case of system failure, ensuring operational continuity. The central bank will announce results on the same day as the auction, maintaining transparency in the process.

Successful participants face a strict timeline requirement - securities must be credited to their Subsidiary General Ledger (SGL) account by 12 noon on January 6, 2026.

Recent OMO Performance

The December 29 OMO purchase demonstrated strong market participation across multiple securities:

Notably, bids for the 7.18% GS 2037 security were not accepted during this operation.

Comprehensive Liquidity Framework

On December 23, the RBI outlined an extensive liquidity management plan encompassing OMO purchases and USD/INR buy/sell swaps. The programme includes four OMO tranches of ₹50,000 crore each, scheduled for December 29, January 5, January 12, and January 22, collectively totaling ₹2 lakh crore in liquidity injection.

India is preparing to overhaul its inflation measurement framework as the country experiences one of its most benign price environments in recent years. The government plans to introduce a new Consumer Price Index methodology and revamp the monetary policy mandate for targeting retail inflation in 2026, following a sustained period of controlled price pressures.

Inflation Remains in RBI's Comfort Zone

CPI-based retail inflation has consistently remained within the Reserve Bank's comfort zone of 2-6% and is projected to maintain this trajectory in the coming year. This stability has created room for potential monetary policy easing, with at least one more rate reduction possible in the coming months.

The inflation scenario has been particularly favorable due to two key factors:

• Cooling food prices across multiple categories
• Government's decision to reduce GST rates on approximately 400 items in September

Contrasting Performance of Price Indices

The wholesale and retail price indices have shown markedly different trajectories throughout 2025:

Food Inflation Turns Negative

Food inflation, which constitutes approximately 48% of the CPI basket, has experienced a dramatic transformation. Starting from around 6% in January, food prices entered negative territory by June and reached -3.91% in November according to the latest available data.

This deflationary trend in food prices has been a primary driver of overall price stability, contributing significantly to the benign inflation environment.

New CPI Framework and Methodology

The government is developing a comprehensive new CPI series with significant structural changes:

This exercise, being undertaken after more than a decade, aims to substantially enhance the quality of inflation data. The current five-year inflation targeting regime is set to conclude in March, with the new framework becoming effective from April 1, 2025.

Economic Projections and Policy Implications

RBI Governor Sanjay Malhotra has projected headline inflation to be close to the 4% target in H1:2026-27. However, excluding precious metals, inflation is expected to remain much lower, continuing the trend observed since early 2024.

Several factors support the outlook for continued low inflation:

• Good agricultural production prospects
• Sustained low food prices
• Exceptionally benign international commodity price outlook

These conditions suggest that CPI for the full year 2025-26 is likely to be around 2%, representing half of what was initially projected.

Monetary Policy Response

With inflation remaining controlled, the Reserve Bank has implemented accommodative monetary policy measures. The central bank has cumulatively reduced the short-term benchmark lending rate (repo) by 125 basis points since February 2025.

Expert Analysis and Future Outlook

Bank of Baroda Chief Economist Madan Sabnavis emphasized that "the most important aspect of inflation in 2026 will be the new index and its composition." Assuming normal monsoon conditions, he expects inflation to remain well-controlled in 2026, though the extremely low numbers from 2025 may reverse due to base effects, with inflation potentially ranging between 4-4.5%.

ICRA Chief Economist Aditi Nayar explained the divergence between WPI and CPI, noting that while food segments remain deflationary across both wholesale and retail segments, services and non-food goods have prevented CPI from entering deflationary territory.

Crisil Chief Economist Dharmakirti Joshi highlighted that both indices delivered significant surprises throughout the year, with each month recording lower-than-expected readings. Looking ahead, he expects consumer inflation to rise to 5% in FY27, largely due to base effects, while interest rates are likely to remain steady at 5.25%.

The Reserve Bank's final bi-monthly monetary policy for 2025-26 is scheduled for February 4-6, 2026, which will provide crucial guidance on the future policy direction.