RBI’s Liquidity Push: Easier Funding, Softer Yields, But a Weaker Rupee

RBI is aggressively easing domestic funding conditions through a mix of bond purchases and FX swaps. It has already been said in December 2025 in two ₹50,000 crore tranches ₹1 lakh crore of OMO G‑sec purchases, clearly to infuse long-lasting liquidity, in conjunction with a 3‑year USD 5 billion buy–sell swap that transforms FX reserves into rupee liquidity without permanently lowering reserves. It is also actively using variable rate repo (VRR) auctions to reduce short-term conflicts from tax outflows and government cash build-up.

Looking ahead, the RBI has indicated a further ₹2 lakh crore of OMO buys between late December 2025 and January 2026, as well as a more USD 10 billion, three‑year USD/INR buy–sell swap in January, therefore expanding the December playbook. These actions help to boost credit growth, relieve bank financing stress, enhance transmission of previous repo reductions, draw money market rates nearer to the policy repo, and shift system liquidity from deficit back toward neutral/surplus. The result is a softening of bond yields, especially at the longer end of the G‑sec curve, therefore creating a mostly bullish backdrop for home rates and credit conditions.

For the rupee, though, the narrative is more nuanced. INR has depreciated in 2025 by about 5% against the dollar into early December and spot breaching ₹90 per USD around the last policy despite better liquidity. While supporting growth and mood, easier rupee conditions can somewhat deplete the carry attraction of the currency. RBI's actions are aimed to control liquidity rather than to defend a particular FX level. As an analyst, the conclusion is that while OMOs and FX swaps are clearly supportive for local rates, they are just vaguely so for INR: the near‑term path of the rupee will be more driven by global risk attitude, Fed policy, and external flows; RBI's stance mainly affects rupee market depth and volatility rather than the direction of the currency.