As the Indian rupee breached the psychologically important 90 per dollar level, the Reserve Bank of India (RBI), led by Governor Sanjay Malhotra, rolled out a significant liquidity-boosting intervention aimed at calming financial markets and easing pressure on the currency.

In a bid to inject durable liquidity into the system, the central bank announced OMO purchases of government securities worth ₹1 lakh crore in December. In addition, RBI will conduct a three-year dollar–rupee sell/buy FX swap amounting to $5 billion, a move widely seen as an effort to augment rupee liquidity while stabilising market volatility triggered by the currency’s sharp slide.

“in view of the evolving liquidity conditions and the outlook, the Reserve Bank has decided to conduct OMO purchases of government securities of ₹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 in the policy statement today.

In a buy–sell swap, RBI is expected to initially buy dollars from banks, injecting rupee liquidity into the system. When the swap matures three years later, the central bank will sell those dollars back to the banks, thereby absorbing liquidity. This mechanism helps manage long-term liquidity conditions while supporting stability in the foreign exchange market.

In 2025 so far, the rupee has weakened by nearly 5%, hitting an all-time low of 90.43 against the US dollar on December 4, driven by factors including foreign portfolio investment withdrawals, a strengthening USD, and concerns over a trade deal with the US.

The RBI Monetary Policy Committee (MPC) also slashed the repo rate by 25 basis points to 5.25% and maintained a ‘neutral’ stance after its three-day policy review held from December 3 to 5. With this move, the apex bank has delivered four repo rate cuts this year—25 bps each in February and April, a sharper 50 bps cut in June, and another 25 bps in December—bringing the total reduction to 125 bps. The central bank had maintained status quo since the June meeting, keeping rates unchanged at its August and October 2025 reviews.

“The RBI delivered on most fronts on Friday, lowering rates as per our expectations and taking pro-liquidity steps, as well as measures to prevent a re-hardening in borrowing costs. The policy decision was likely dictated by a higher weightage given to below-target inflation, which had provided a sizeable real rate buffer,” said Radhika Rao, Executive Director and Senior Economist, DBS Bank.

“The committee typically refrains from providing directional cues on the currency, instead emphasising a preference to minimise volatility and discourage one-sided speculative bets,” she said.

VK Vijayakumar, Chief Investment Strategist, Geojit Investments, said, “The MPC decided to vote in favour of growth despite ongoing robust growth in the economy. The unanimous nature of the decision in cutting rates by 25 bp reflects the consensus in the MPC that giving further boost to growth is a risk worth taking even in the context of a depreciating rupee.”

The policy support comes at a time when the rupee’s rapid depreciation has raised concerns across equity, bond and currency markets, prompting the central bank to step in with liquidity-supportive tools that address both domestic money market tightening and external sector pressures.