RBI to Inject $32 Billion Liquidity Through Bond Purchases and Forex Swap
The Reserve Bank of India on Tuesday announced measures to infuse around $32 billion worth of rupee liquidity into the banking system over the next month, aiming to ease tight domestic liquidity conditions. The central bank said it will purchase government bonds worth 2 trillion rupees between December 29 and January 22, and conduct a $10 billion three-year dollar-rupee buy/sell swap on January 13.
The steps are intended to inject durable rupee liquidity while simultaneously absorbing excess dollar liquidity that had fuelled a sharp rise in dollar-rupee forward premiums. “The intent is quite clear that the RBI wants to inject durable liquidity into the banking system,” said Sakshi Gupta, principal economist at HDFC Bank, adding that seasonal factors and foreign exchange interventions had weighed on liquidity and that the infusion should support bond market sentiment in the near term.
Under Governor Sanjay Malhotra, the RBI has stepped up liquidity injections to reinforce the impact of recent rate cuts. The central bank has already infused a record 6.50 trillion rupees this year through open market bond purchases and conducted multiple dollar-rupee swaps, including a $5 billion three-year swap on December 16. Market participants expect the measures to support government bond prices, though traders cautioned that year-end regulatory constraints may still limit the immediate easing of excess dollar liquidity pressures.
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