Written by George MathewDecember 23, 2025 07:59 PM IST 3 min readThe primary objective is to add durable liquidity without permanently expanding the RBI’s balance sheet which helps to keep short-term interest rates aligned with the policy corridor.The Reserve Bank of India (RBI) has decided to inject liquidity worth Rs 290,000 crore ($32 billion) into the banking system via purchase auction of government securities and buy-sell swap auction in the next one month.According to the RBI, it has planned open market operation (OMO) purchase auctions of Government of India securities for an aggregate amount of Rs 200,000 crore in four tranches of Rs 50,000 crore each to be held on December 29, January 5, 2026, January 12, 2026 and January 22, 2026.The RBI buys government bonds from banks and injects liquidity — rupees — into the system, helping lower interest rates.The central bank has also planned a US dollar-rupee buy-sell swap auction of $10 billion (around Rs 90,000 crore) for a tenure of three years to be held on January 13, 2026. “The Reserve Bank will continue to monitor evolving liquidity and market conditions and take measures as appropriate to ensure orderly liquidity conditions,” it said. In a buy-sell swap, the RBI buys US dollars from banks in the spot market (paying rupees) and simultaneously agrees to sell those dollars back at a future date (forward leg).The primary objective is to add durable liquidity without permanently expanding the RBI’s balance sheet which helps to keep short-term interest rates aligned with the policy corridor. By absorbing dollars temporarily, the RBI can smooth excessive forex market volatility.The liquidity injection is expected to accelerate policy rate transmission and spur credit offtake. As liquidity rises, banks have more lendable resources, which typically pulls down short-term interest rates, keeps overnight rates aligned with the policy rate, and softens bond yields.“In view of the evolving liquidity conditions and the outlook, the RBI has decided to conduct OMO purchases of government securities of Rs 1,00,000 crore and a three-year USD/INR buy sell swap of $5 billion this month to inject durable liquidity into the system,” RBI Governor Sanjay Malhotra said while unveiling the monetary policy earlier this month.Story continues below this adWith surplus funds, banks become more willing to extend credit, improving loan flows to corporates, MSMEs and households, and thereby supporting investment and consumption. The RBI cut the policy repo rate by 25 basis points, bringing it down to 5.25 per cent in the December policy review.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. “So, it is quite possible that we inject durable liquidity through purchase of government securities under OMO on the one hand while simultaneously withdrawing transient liquidity through a VRRR (Variable Rate Reverse Repo) operation on the other hand,” Malhotra said. © The Indian Express Pvt Ltd