Key Highlights
- RBI is advancing two ₹50,000‑crore open market purchase tranches to a total of ₹1 lakh crore.
- Liquidity surplus fell to just ₹56,987 crore, far beneath the 1.5–2.0 lakh crore comfort band.
- 10‑year government‑bond yield spiked to 6.72%, an 11‑month peak, prompting the swift intervention.
- Despite a 125‑basis‑point repo‑rate cut to 5.25%, yields stay high due to a weak rupee and external market factors.
Detailed Insights
The Reserve Bank of India has moved up its scheduled Open Market Operations, opting to inject ₹1 lakh crore into the financial system by purchasing government securities on 29 January and 5 February 2026. This decision follows a sharp contraction in the banking sector's liquidity surplus, which registered at only ₹56,987 crore on 26 January—well under the desired 1.5–2.0 lakh crore range.
When the central bank buys securities, cash flows directly into banks, expanding the money supply and putting downward pressure on short‑term rates. By advancing the two ₹50,000‑crore tranches, the RBI aims to pre‑empt a further rise in borrowing costs for corporations and the government, and to restore equilibrium in a market where bond yields had surged to an 11‑month high.
The benchmark 10‑year G‑Sec (6.48 % GS 2035) jumped six basis points to close at 6.72 %, causing its price to dip by roughly 42 paise. Higher yields translate into costlier debt service for the sovereign and cascade into higher loan and mortgage rates across the economy.
Although the RBI has trimmed the repo rate by 125 bps since February 2025, ending at 5.25 %, yields remain elevated. Analysts cite a depreciating rupee, uncertainty surrounding the India‑US trade agenda, and the delayed inclusion of Indian bonds in Bloomberg’s Global Aggregate Index as dampening foreign appetite.
Liquidity pressures are expected to persist throughout FY26, driven by rupee weakness, periodic advance‑tax outflows, GST remittances, and an oversupply of government securities and State Development Loans.
Key Concepts
- Open Market Operations (OMO): Instruments used by a central bank to inject or withdraw liquidity by buying or selling government securities.
- Liquidity Surplus: The amount of excess cash available in the banking system beyond what is needed for routine operations.
- Bond Yield‑Price Inverse Relationship: When yields rise, bond prices fall, raising the cost of borrowing for issuers.
- Repo Rate: The policy rate at which the RBI lends short‑term funds to banks against securities.
- Benchmark G‑Sec: The 10‑year government security that serves as a reference point for pricing other debt instruments.