The Reserve Bank of India (RBI) on Friday announced it will conduct a series of liquidity-boosting operations through December 2025 as part of its review of current financial conditions. The central bank stated the move aims to ensure banks have sufficient funds to support credit demand and maintain smooth market functioning.

In its statement, the RBI said it will conduct open market purchase auctions of Government of India securities worth a total of ₹1 lakh crore during the month. These will be carried out in two equal tranches of ₹50,000 crore each, scheduled for 11 December and 18 December. Through these auctions, the RBI will buy government bonds from the market, which will inject money into the banking system.

Apart from bond purchases, the central bank will also conduct a USD/INR buy/sell swap auction of $5 billion on December 16, with a maturity of three years. According to analysts, this operation will see the RBI buy dollars from market participants and supply rupees in exchange, adding liquidity to the system. When the swap reaches maturity after three years, the transaction will be reversed at a pre-agreed rate.

The RBI stated that detailed operational guidelines for each of these liquidity measures will be provided separately to the market. Such instructions generally outline bidding rules, settlement procedures, and other operational steps for participants.

The central bank added that it will keep a close watch on liquidity trends and financial market movements in the coming weeks. "The Reserve Bank will continue to monitor evolving liquidity and market conditions and take measures as appropriate to ensure orderly liquidity conditions," stated the RBI circular.

By outlining a clear schedule of liquidity-injection measures, the RBI aims to reduce uncertainty and bolster financial stability throughout the remaining month.

Similarly, the MPC delivered a unanimous 25bps rate cut, lowering the repo rate to 5.25% while maintaining a neutral stance.

Overall, the policy was dovish, promoting smoother monetary transmission, which would help stabilise LDR. While the RBI signals a focus on monetary transmission, we expect an additional 25bp rate cut in this cycle, as we believe economic weakness will persist in the near term.