RBI to maintain ample banking liquidity without targeting surplus levels

The Reserve Bank of India (RBI) will ensure ample liquidity in the banking system without explicitly targeting surplus levels of around 1 per cent of net demand and time liabilities (NDTL), Governor Sanjay Malhotra said at the post-monetary policy press conference.

 

“Monetary transmission is happening, and we will provide sufficient liquidity to support it,” the Governor said.

 

He said that current liquidity in the banking system sometimes exceeds 1 per cent of NDTL, ranging between 0.6 per cent and 1 per cent, occasionally going higher. “The exact number, whether 0.5, 0.6, or 1 per cent, should not matter. What is important is that banks have enough reserves to function smoothly,” he added.

 

The central bank has announced liquidity measures through open market operations (OMOs) and forex buy-sell swaps. OMOs will involve the purchase of Government of India securities worth ₹1 trillion — in two tranches of ₹50,000 crore each — on December 11 and December 18. Additionally, a USD/INR buy-sell swap of $5 billion for three years will be held on December 16.

 

“RBI’s FX (foreign exchange) intervention has broadly undone the impact of CRR (cash reserve ratio) cut of 1 per cent of NDTL spread over September to November that had injected approximately ₹2.5 trillion into the system. RBI’s forward book increased to $63.6 billion as of October. Now, as these positions mature, it could (if RBI sells these dollars) act as a further drain on rupee liquidity,” said HDFC Bank in a note.

 

While net liquidity has remained in surplus for the major part of 2025-26 (FY26), experts expect the liquidity to tighten in near term on the back of FX interventions and increased currency circulation.

 

“Liquidity has remained in surplus since the end of March 2025, despite some periods of tightening in recent months. Going forward, due to FX interventions and increased currency in circulation, we anticipate surplus liquidity to be closer to neutral,” Axis Bank said in a note.

 

Liquidity is primarily needed to maintain banking reserves. It fluctuates due to currency in circulation, when currency is issued, deposits decrease, or through foreign exchange operations, such as selling dollars, which draws deposits out of the banking system. Changes in reserve requirements due to higher deposits also affect liquidity.

 

“As of now, banking liquidity is sufficient, and we continue to maintain ample liquidity. I am not targeting a specific level like 1 per cent, but I want to give confidence to the banking community that liquidity will remain ample, especially as we are in a phase where interest rates need to come down,” the Governor said.

 

Net liquidity in the banking system was in a surplus of ₹2.6 trillion on Thursday, latest RBI data showed.

 

In his monetary policy statement, Malhotra clarified that liquidity operations under different tools serve distinct purposes. Injections or absorptions of liquidity through the purchase or sale of government securities under OMOs are aimed at providing or absorbing durable liquidity while operations under the liquidity adjustment facility (LAF), such as the variable repo rate/variable rate reverse repo (VRR/VRRR), are intended to manage transient liquidity and align the weighted average call rate (WACR) with the policy repo rate.

 

He said that it is, therefore, possible for the RBI to inject durable liquidity through OMOs while simultaneously withdrawing transient liquidity through VRRR operations.