In a significant move to address a tightening cash situation, the Reserve Bank of India (RBI) announced on Tuesday a substantial liquidity infusion plan totalling nearly Rs 2.9 lakh crore into the banking system over the coming month. The central bank's strategy involves large-scale government bond purchases and a foreign exchange swap operation aimed at easing the recent liquidity squeeze and calming rising bond yields.
Details of the Liquidity Injection Plan
The RBI outlined a two-pronged approach to pump durable liquidity into the financial markets. First, it will conduct open market purchases of government bonds worth Rs 2 lakh crore between December 29, 2025, and January 22, 2026. Second, on January 13, 2026, the central bank will execute a $10-billion, three-year dollar-rupee buy/sell swap.
This specific swap mechanism involves the RBI buying US dollars from banks with an agreement to sell them back after three years at a predetermined premium. Such an operation serves a dual purpose: it immediately infuses rupee liquidity into the domestic banking system and helps in bringing down the premium on dollars in the future market.
Addressing the Recent Liquidity Deficit
The announcement comes as a direct response to a sharp reversal in systemic liquidity conditions in recent weeks. After enjoying a surplus for much of November and early December, banks faced a cash crunch following large outflows related to corporate tax payments. These payments led to a significant build-up of government cash balances with the RBI, draining funds from the market.
According to official data, the system liquidity slipped into a deficit in the second half of December, marking the first shortfall in nearly two months. The deficit was recorded at approximately Rs 60,800 crore on December 16 and Rs 68,600 crore on December 17, before easing to around Rs 29,900 crore. Apart from tax outflows, year-end demand for currency and the RBI's own dollar-selling interventions to curb rupee volatility further absorbed rupees from the banking system.
A Series of Preemptive Measures
Prior to this major announcement, the RBI had already undertaken several steps to inject what it terms 'durable liquidity'—funds that remain in the system for a longer duration. These measures included:
- The final tranche of a 25 basis points Cash Reserve Ratio (CRR) cut, effective November 29, which added about Rs 60,000 crore.
- Open market purchases of government bonds totalling Rs 1 lakh crore in December through two auctions.
- A $5 billion, three-year dollar-rupee swap conducted on December 16, which infused another Rs 45,000 crore.
Combined, these earlier actions provided roughly Rs 1.5 lakh crore of durable liquidity. The latest plan significantly scales up these efforts. Notably, with the fresh bond purchases, the RBI's total infusion through open market operations in 2025 will reach a record Rs 6.5 lakh crore.
The central bank's aggressive liquidity management underscores its commitment to ensuring orderly functioning of financial markets and supporting economic growth by maintaining adequate cash flow within the banking system.
