RBI to conduct Rs 1 lakh cr OMO during December to inject liquidity

MUMBAI: The Reserve Bank on Friday decided to conduct Open Market Operation (OMO) purchases of government securities of Rs 1 lakh crore this month in a bid to maintain sufficient liquidity in the system.

Besides, the central bank will do a 3-year USD/INR buy-sell swap of USD 5 billion this month to inject durable liquidity.

These measures would help mitigate the liquidity crunch in view of the outgo from the banking system towards the third instalment advance tax payments due on December 15.

"... In view of the evolving liquidity conditions and the outlook, the Reserve Bank has decided to conduct OMO purchases of government securities of Rs 1,00,000 crore and a 3-year USD/INR Buy Sell swap of USD 5 billion this month to inject durable liquidity into the system," RBI Governor Sanjay Malhotra said while announcing the outcome of the MPC meeting.

System liquidity, as measured by the net position under the liquidity adjustment facility (LAF), he said, stood at an average surplus of Rs 1.5 lakh crore for the period since the Monetary Policy Committee last met in October 2025.

The average daily net absorption under the LAF stood at Rs 2.9 lakh crore in August and Rs 1.6 lakh crore in September, respectively.

The average daily net absorption under the LAF declined to Rs 0.9 lakh crore in October 2025 but improved to Rs 1.9 lakh crore in November 2025. As of December 03, net absorption under the LAF stood at Rs 2.6 lakh crore.

Providing assurance to the market, Malhotra said, "We are committed to providing sufficient durable liquidity to the banking system. We continuously assess the durable liquidity requirements of the banking system due to changes in currency in circulation, forex operations, and reserve maintenance."

He clarified that the injection (absorption) of liquidity through purchase (sale) of government securities under OMOs and that through operations under the LAF (VRR or VRRR) of short-term duration serve very different purposes.

"While the objective of purchase (sale) under OMO is to provide (absorb) durable liquidity, the purpose of repo operations is to manage transient liquidity so as to align the operating target – the Weighted Average Call Rate (WACR)– to the policy repo rate," he said.

So, it is quite possible that the RBI injects durable liquidity through the purchase of government securities under OMO on the one hand, while simultaneously withdrawing transient liquidity through a VRRR operation on the other hand, he said.

"I would further like to reiterate that the primary instrument of monetary policy is the policy repo rate. It is expected that changes in the short-term interest rates will transmit to various long-term rates. At the same time, the primary purpose of open market operations is to provide sufficient liquidity and not to directly influence G-sec yields," he said.