RBI Injects Rs 1 Lakh Crore Through OMO to Stabilise Liquidity and Bond Market

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The Reserve Bank of India (RBI) has decided to accelerate its planned purchases of government bonds, putting Rs 1 lakh crore into the banking system. This proactive step is designed to relieve tight liquidity in banks and prevent a further rise in government bond yields, which have recently approached their highest levels in nearly a year.

Why Liquidity Is Tight

In late January, banks had only about Rs 57,000 crore in surplus funds, far below the comfortable range of Rs 1.5–2 lakh crore. When liquidity is low, borrowing costs for businesses and the government can rise, making loans more expensive and slowing economic activity. By acting early, the RBI aims to ensure banks have enough funds to lend and that interest rates remain stable.

How Bond Purchases Help

When the RBI buys government securities, it adds cash to the banking system. More cash means banks can lend more freely, keeping borrowing costs in check. This mechanism, known as Open Market Operations (OMOs), is one of the RBI’s primary tools for managing money supply and market stability.

Updated Timeline

The RBI had originally planned to conduct its OMO auctions in early and mid-February. These have now been moved forward: two tranches of Rs 50,000 crore each will occur on 29 January and 5 February 2026. By advancing the schedule, the central bank is responding quickly to prevent liquidity stress from worsening.

Bond Market Implications

The yield on the benchmark 10-year government bond (6.48% GS 2035) recently jumped to 6.72%, the highest level in 11 months. Because bond prices fall when yields rise, this increase caused bond values to drop. Rising yields make it more expensive for the government to borrow and can influence interest rates on loans, mortgages, and other credit products.

Persisting High Yields

Even after the RBI cut the repo rate by 125 basis points to 5.25% since February 2025, bond yields have stayed elevated. Factors such as a weaker rupee, ongoing trade uncertainties with the US, and delays in including Indian bonds in global indices have reduced foreign investment, keeping yields high despite lower policy rates.

Broader Liquidity Patterns

Throughout FY26, liquidity has been uneven due to GST outflows, advance tax payments, currency fluctuations, and the steady supply of government and state loans. The RBI’s early intervention through OMOs is intended to inject funds quickly, stabilise rates, and ensure that credit continues to flow smoothly to the economy.

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