RBI ₹3 Trillion Liquidity Boost After Rupee Defence
Why in the news
RBI was set to inject roughly ₹3 trillion of durable liquidity, countering the squeeze caused by its dollar sales for the rupee.
Key facts
- Rupee: ₹91/$ to ₹89/$.
- Side effect: tight liquidity despite a recent 25 basis point repo rate cut.
| Tool | Mechanism | Liquidity |
|---|---|---|
| OMO purchase | RBI buys government bonds, pays banks cash | Up |
| OMO sale | RBI sells bonds, absorbs cash | Down |
| Buy-sell swap | RBI buys dollars, gives rupees, reverses later | Up for the period |
Why these tools
- OMOs manage liquidity and influence interest rates.
- Swaps manage rupee liquidity, calm rupee pressure and avoid sudden forex shocks.
Exam angle
- Bond buying adds money to the system.
- Swap is temporary.