RBI to infuse additional liquidity via Open Market Operations purchase, $10B forex swap for liquidity crunch

The Reserve Bank of India (RBI) announced on March 5th that it will provide liquidity through Open Market Operations (OMO) purchases and USD/INR Buy/Sell swap auctions. 

On Wednesday, the central bank announced that it would be conducting two Open Market Operations (OMO) purchase auctions of Government of India securities, totaling Rs 1 lakh crore. The auctions will take place in two parts: Rs 50,000 crore on March 12, 2025, and another Rs 50,000 crore on March 18, 2025.

Furthermore, the RBI will hold a USD/INR Buy/Sell Swap auction for Rs 10 billion with a 36-month tenor on March 24, 2025.

The Indian banking system is currently facing its most severe liquidity crunch in over ten years, with system liquidity transitioning from a surplus of Rs 1.35 lakh crore in November to a deficit of Rs 0.65 lakh crore in December. This deficit has continued to grow, reaching Rs 2.07 lakh crore in January and Rs 1.59 lakh crore in February.

"On a review of current and evolving liquidity conditions, the Reserve Bank has decided to conduct the following operations to inject liquidity into the banking system:
a. OMO purchase auctions of Government of India securities for an aggregate amount of Rs 1,00,000 crore in two tranches of Rs 50,000 crore each to be held on
March 12, 2025 (Wednesday), and March 18, 2025 (Tuesday).
b. USD/INR Buy/Sell Swap auction of USD 10 billion for a tenor of thirty-six months to be held on March 24, 2025 (Monday)," the central bank noted.

The central bank reaffirmed its commitment to monitoring liquidity and market conditions closely and taking any necessary steps to maintain stability and orderly liquidity management.

The banking system has experienced liquidity challenges since November 2024, attributed to factors such as tax outflows, significant foreign portfolio investor selling in Indian equities, RBI intervention in forex markets, and lower-than-expected government spending.

To address this issue, the RBI has infused approximately Rs 3 lakh crore of durable liquidity into the system through VRR auctions, swaps, and open market operations since late-2024.