RBI Announces OMO Purchases to Support Liquidity and Rupee Stability

In its December 2025 policy review, the Reserve Bank of India unveiled major liquidity measures, including ₹1 trillion of open market operation (OMO) purchases and a three-year dollar–rupee buy/sell swap of $5 billion. The initiatives aim to stabilise market conditions, strengthen monetary transmission and ease pressures arising from the rupee’s sharp depreciation.

Understanding Open Market Operations

Open market operations are a core monetary policy tool through which the RBI buys or sells government securities to influence liquidity. OMO purchases inject funds into the banking system, while OMO sales withdraw liquidity. The central bank uses these operations to maintain orderly money-market conditions and ensure that banks have adequate resources for credit delivery.

Why OMOs Matter When the Rupee Weakens

The rupee recently crossed the 90-per-dollar mark, reflecting heightened currency stress and foreign investor outflows. Such periods drain liquidity and raise short-term interest rates. OMO purchases counteract this by injecting durable rupee liquidity. They also smooth money-market volatility caused by increased dollar demand and help restore uniform monetary transmission across banks when liquidity becomes uneven.

Difference Between OMOs and Short-Term Tools

The governor highlighted that OMOs address long-term liquidity, whereas repo and variable rate operations deal with short-term mismatches. While durable liquidity supports broader market functioning, transient tools ensure the weighted average call rate aligns with the policy repo rate, now at 5.25 per cent. The RBI may simultaneously inject durable liquidity through OMOs and withdraw short-term liquidity through variable rate repos when required.

Exam Oriented Facts

• RBI announced ₹1 trillion OMO purchases and a $5 billion dollar–rupee swap.
• OMOs involve buying or selling government securities to manage liquidity.
• Rupee depreciation increases demand for dollars, tightening liquidity.
• Policy repo rate stands at 5.25%, guiding short-term monetary conditions.

Economic Outlook and Policy Context

The RBI reaffirmed confidence in India’s growth prospects despite global uncertainty. The governor stated that favourable inflation trends provide space for growth-supportive measures. The liquidity framework is designed to maintain stability while ensuring effective transmission of monetary policy across the financial system.