RBI announces ₹1 lakh crore OMO, $10 billion forex swap to ease liquidity crunch

The Reserve Bank of India (RBI) on Wednesday announced measures to inject liquidity into the banking system, including open market operation (OMO) purchase auctions worth ₹1 lakh crore and a USD/INR buy/sell swap auction of USD 10 billion.

The central bank said it will conduct two OMO purchase auctions of Government of India securities in tranches of ₹50,000 crore each on March 12 and March 18. The RBI will also hold a $10 billion USD/INR buy/sell swap auction for a 36-month tenor on March 24.

“The Reserve Bank will continue to monitor evolving liquidity and market conditions and take measures as appropriate to ensure orderly liquidity conditions,” the central bank said in a statement.

Liquidity deficit, which worsened from ₹65,000 crore in December 2024 to ₹2.07 lakh crore in January 2025, eased slightly to ₹1.59 lakh crore in February but remains under pressure due to year-end tax outflows and rising credit demand, the report said.

To manage liquidity, the RBI has deployed multiple tools, including variable rate repo (VRR) auctions since January 16, open market operations, and a 25 basis points repo rate cut. A recent USD 10 billion forex swap, the largest conducted by the RBI so far, helped infuse durable liquidity into the system.

Bond markets, however, continue to exhibit stress, with corporate bond yields and certificate of deposit (CD) rates staying elevated. The spread between the repo rate and corporate bond yields has widened to 125 basis points, while the spread between the repo rate and 3-month CDs surged to 119 basis points in February, SBI Research noted.

The report also pointed out that the spread between state government securities (SGS) and government securities (G-secs) has widened from 30-35 basis points to 45-50 basis points, despite rate cuts. SBI Research suggested that additional OMOs targeting SGSs may be required to narrow these spreads and improve monetary policy transmission.

“We are of the opinion that there is a need to address this ‘spread widening’ and believe that open market operations may be considered in SGSs as well to smoothen/harmonize the spreads,” it said.