The Reserve Bank of India plans to inject $32 billion into the banking system, potentially benefiting Non-Resident Indians by enhancing the value of their remittances.
The Reserve Bank of India (RBI) has announced plans to inject approximately $32 billion into the banking system over the next month. This move aims to ensure sufficient cash availability and maintain stable interest rates.
According to reports, the RBI will implement this liquidity infusion through two primary methods. First, it will purchase government bonds worth ₹2 trillion (approximately $22.34 billion) between December 29 and January 22, 2026. This action will increase the number of rupees in circulation.
Secondly, the RBI will conduct a $10 billion, three-year dollar-rupee buy/sell swap on January 13. This swap is designed to manage both the supply of dollars and the liquidity of rupees in the market.
“The intent is quite clear that the RBI wants to inject durable liquidity into the banking system,” stated Sakshi Gupta, principal economist at HDFC Bank. Gupta noted that seasonal factors and the central bank’s foreign exchange interventions have negatively impacted rupee liquidity. She believes that the size of this infusion should positively influence bond market sentiment in the near term.
As the RBI increases rupee liquidity, it may exert mild downward pressure on the rupee’s value. A weaker rupee could result in Non-Resident Indians (NRIs) receiving more rupees for each dollar they remit, making remittances more appealing in the short term. Typically, a softer rupee encourages higher remittance flows from NRIs, particularly for purposes such as investments, family support, or property acquisitions.
By easing liquidity conditions, the RBI aims to prevent domestic interest rates from rising sharply, which could limit potential increases in NRI deposit rates. The dollar-rupee swap is also intended to mitigate volatility, reducing the risk of sudden currency fluctuations that could disrupt remittance timing decisions.
This liquidity injection is expected to enhance the transmission of policy rates and stimulate credit growth. As liquidity increases, banks will have more resources available for lending, which generally leads to lower short-term interest rates, aligns overnight rates with the policy rate, and softens bond yields.
This year, the RBI has already infused a record ₹6.50 trillion into the economy through open market bond purchases and has conducted multiple dollar-rupee buy/sell swaps. The most recent swap occurred on December 16, involving $5 billion over three years.
A treasury head at a private sector bank commented, “We would see the 10-year benchmark bond yield moving below the 6.60% mark in early trades tomorrow. After that, the movement will depend on the choice of papers for next week’s open market operations.” The 10-year yield closed at 6.6328% on Tuesday.
Traders in the foreign exchange market believe that while the swap will help alleviate the recent upward pressure on forward premiums, it is unlikely to resolve the immediate challenges related to excess dollar liquidity as the year draws to a close.
“We expect the rate cut and open market operations-driven liquidity infusion to improve portfolio transmission and create greater room for lending to micro, small, and medium enterprises (MSMEs), retail borrowers, and the rural economy,” said Sarvjit Singh Samra, CEO of Capital Small Finance Bank. He added that the neutral stance of the RBI also brings policy predictability, allowing for more precise planning of asset-liability strategies.
This strategic liquidity injection by the RBI is poised to have significant implications for both the banking sector and NRIs, potentially enhancing the value of remittances and supporting economic growth.
According to Reuters, the RBI’s actions reflect a proactive approach to managing liquidity and ensuring stability in the financial system.