RBI's ₹1 trn OMO purchase to add liquidity: What is it and why it matters

RBI will inject durable liquidity through a ₹1 trillion OMO purchase and a $5 billion dollar-rupee swap. Here is what OMOs are, how they work, and why they matter as the rupee weakens

In its December 2025 policy review, the Reserve Bank of India (RBI) said it will conduct Open Market Operation (OMO) purchases of government securities worth ₹1 trillion and a three-year dollar–rupee buy/sell swap of $5 billion to inject further durable liquidity into the financial system.

 

RBI Governor Sanjay Malhotra said the liquidity measures were intended to strengthen monetary transmission and support market stability.

 

“We are hopeful that these measures will ensure adequate, durable liquidity in the system and further facilitate monetary transmission,” Malhotra said.

 

What is an open market operation (OMO)?

 

Open market operations are a key monetary policy instrument through which the RBI buys or sells government securities to regulate liquidity in the banking system.

 

OMO purchases inject liquidity, as the RBI pays banks for the securities. OMO sales absorb liquidity, as banks pay the RBI.

 

Why do OMOs matter when the rupee is under pressure?

 

The announcement comes amid sharp depreciation in the rupee, as the national currency crossed the 90-mark against the US dollar. When the rupee crosses key levels, the RBI typically uses a mix of tools such as spot dollar sales, forex swaps and OMO purchases.

 

A sharp fall in the rupee often coincides with foreign investor outflows, which drain liquidity from the banking system. An OMO purchase helps replenish this liquidity by injecting durable funds into banks.

 

Also, heightened demand for dollars during periods of currency pressure can tighten money-market conditions, pushing up call rates and short-term yields. OMO purchases ease these pressures by improving rupee liquidity.

 

Currency stress can also create uneven liquidity across banks, weakening transmission of the RBI’s policy stance. Durable liquidity through OMOs helps restore smoother transmission across the system.

 

Malhotra outlined how OMOs differ from the policy tools used to handle short-term liquidity swings.

 

“While the objective of purchase and sale under OMO is to provide or absorb durable liquidity, the purpose of repo operations is to manage transient liquidity of a very short nature. This helps us align the operating target - the weighted average call rate - with the policy repo rate, which now stands reduced to 5.25 per cent,” he said.

 

He added that the central bank could inject durable liquidity through OMO purchases while simultaneously withdrawing short-term liquidity through a variable repo rate (VRR) operation when needed.

 

What is the broader economic backdrop RBI is pointing to?

 

Governor Malhotra said India’s growth outlook remained resilient despite global headwinds.

 

“Despite an unfavourable and challenging external environment, the Indian economy has shown remarkable resilience. It is poised to register high growth. The headroom provided by the inflation outlook has allowed us to remain growth supported,” he said.