RBI Unveils ₹1.6 Trillion Liquidity Injection to Boost Indian Economy

In a decisive move to bolster the Indian economy, the Reserve Bank of India (RBI) announced on December 5, 2025, a series of measures aimed at injecting approximately ₹1.6 trillion (about $16 billion) into the banking system. These initiatives include Open Market Operations (OMO) purchases of government securities totaling ₹1 trillion and a $5 billion USD/INR buy-sell swap auction, all scheduled for December.

The RBI's plan involves purchasing government securities worth ₹1 trillion through OMOs, divided into two tranches of ₹50,000 crore each, set for December 11 and December 18, 2025. Additionally, a $5 billion USD/INR buy-sell swap auction is planned for December 16, 2025, aiming to inject durable liquidity into the banking system.

These measures coincide with the RBI's decision to cut the key repo rate by 25 basis points to 5.25% on the same day. This rate cut, unanimously decided by the Monetary Policy Committee (MPC), marks the most aggressive monetary easing since 2019. The RBI's actions are intended to support India's economy amid global headwinds, including U.S.-imposed tariffs.

India's economy is currently experiencing a "rare goldilocks" phase, characterized by strong growth and low inflation. The GDP growth projection for the year has been revised upwards to 7.3% from 6.8%, while inflation is forecasted to fall to 2% from 2.6%. In October, retail inflation reached a record low of 0.25%, prompting views that more rate cuts are feasible.

The RBI's decision to conduct OMOs and forex swaps is not unprecedented. Earlier in 2025, the RBI conducted similar operations to manage liquidity conditions. For instance, in June 2025, the RBI cut the Cash Reserve Ratio (CRR) by 1%, unlocking ₹2.5 trillion in liquidity for the banking system.

The infusion of liquidity is expected to enhance the lending capacity of banks, potentially leading to increased credit flow to various sectors of the economy. The OMO purchases are likely to support the bond market by increasing demand for government securities, which could lead to a decrease in yields. The USD/INR swap aims to manage rupee liquidity and address excess dollar influx from past interventions and IPO capital. However, the rupee has recently depreciated by nearly 0.3% to 90.21 against the U.S. dollar, driven by increased dollar demand from corporations for near-term payments and outflows.

The RBI's strategies align with global central banks' efforts to manage liquidity. For instance, the Federal Reserve announced on December 10, 2025, that it will resume purchasing Treasury bills to manage market liquidity and maintain effective control of interest rates.

The RBI's recent measures reflect a proactive approach to managing liquidity and supporting economic growth amid evolving financial conditions. The effectiveness of these interventions will be closely monitored in the coming months.