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RBI has announced to inject Rs 2 lakh crore cash to overcome the liquidity crunch of banks.Image Credit source: ChatGPT

The Reserve Bank of India (RBI) on Friday said it will infuse more than Rs 2 lakh crore of cash into the banking system through various means. An official statement said that after reviewing the current cash and financial conditions, the Reserve Bank has decided to infuse cash into the banking system. These measures include a 90-day Variable Rate Repo (VRR) auction for an amount of Rs 25,000 crore to be held on January 30, 2026 and a 'US Dollar/Indian Rupee Buy-Sell Swap auction for an amount of $ 10 billion, i.e. Rs 91,000 crore, for a three-year period to be held on February 4, 2026.

According to the statement, the central bank will also purchase government bonds worth a total of Rs 1 lakh crore under the open market operations (OMO) route. According to the statement, under this, bonds worth Rs 50-50 thousand crore will be purchased on February 5 and February 12. The central bank said that detailed instructions for each measure will be issued separately. Apart from this, RBI said that detailed instructions will be issued separately for each liquidity drive. It also said that it will continuously monitor liquidity and changing market conditions and take appropriate measures to ensure smooth liquidity.

Economists want clear signal on OMO purchase

On the other hand, economists of Indian banks have urged the Reserve Bank of India (RBI) to clearly state its commitment towards Open Market Operation (OMO) purchases of at least Rs 3-5 lakh crore. They argue that such assurances will help reduce government bond yields and quickly spread the effects of previous policy interest rate cuts. Quoting an ET report on Thursday, he warned that a prolonged liquidity crunch could start putting pressure on loan demand and economic growth in Asia's second-largest economy.

The issue was discussed in the pre-policy consultation meetings held on January 21 and 22, in which RBI Governor Sanjay Malhotra, Deputy Governor Poonam Gupta and Indranil Bhattacharya, Executive Director in-charge of the Department of Monetary Policy, were present. An economist present at one of the meetings said in an ET report that the system's tight liquidity, strong loan growth and continued intervention in the foreign exchange market by the RBI have largely balanced out the liquidity impact of previous OMO purchases.

No possibility of policy rate cut

The economist said participants also expressed concern over the lack of liquidity and high rates of Certificate of Deposit (CD) amid uncertainty over the new inflation and GDP chains. One participant suggested that the RBI should consider reducing the intensity of its interventions in the foreign exchange market to reduce liquidity leakage.

However, another economist involved in the discussion said there was broad consensus that the central bank should avoid cutting interest rates at its February policy meeting and instead wait for new inflation and GDP chain data to become available.

The revised series is expected to take effect with the release of inflation data in February, so economists do not expect the RBI to revise its inflation or growth projections in the February monetary policy review.

So far in January, the liquidity of the system has been at an average surplus of Rs 59,356 crore. RBI made OMO purchases of Rs 3 lakh crore in December and January, taking the total OMO purchases in the current financial year to Rs 5.20 lakh crore.

After the presentation of the Union Budget on February 1, the Monetary Policy Committee will give its decision on the benchmark repo rate on February 6. RBI has reduced the repo rate by a total of 125 basis points since February 2025 and now it stands at 5.25 percent.