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Informist, Friday, Dec. 5, 2025

 

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--RBI Malhotra: FX swap liquidity measure, not to support rupee 
--RBI Malhotra: To provide sufficient liquidity to ensure policy transmission
--RBI Malhotra: Liquidity surplus to top 1% of banks' NDTL with OMO, FX swap 
--RBI Malhotra: Banking liquidity sufficient right now 
--RBI Malhotra: Not targetting any particular level for liquidity 
--RBI Malhotra: Effort is to keep weighted avg call rate at repo rate 
--RBI Malhotra: Endeavour to give balanced govt bond supply in various tenors 
--RBI Malhotra: Will provide balanced mix of govt bond supply 
--RBI Malhotra: Will not buy state govt bonds in OMOs 
--RBI Malhotra: Will take call on more OMO buys as per liquidity conditions

 

MUMBAI – Liquidity in the banking system will rise above 1% of banks' net demand and time liabilities with the infusion of around INR 1.50 trillion through the open market bond buys and the dollar-rupee buy-sell swap the Reserve Bank of India will conduct this month, RBI Governor Sanjay Malhotra said at the post-policy press conference Friday. Earlier in the day, Malhotra announced INR 1.00 trillion of open market operations purchases in two tranches and a dollar-rupee buy-sell swap of $5 billion to be held in December. 

 

At the press conference, Malhotra reiterated that the central bank would provide sufficient liquidity to the banking system to keep it in surplus and aid monetary policy transmission. In April, the governor had said the central bank aims to keep surplus liquidity at around 1% of banks' NDTL. Malhotra Friday said systemic liquidity need not be as high as the surplus the RBI has kept it in, if not for policy transmission. The central bank has kept the liquidity surplus largely between 0.6% and 1% of banks' NDTL, sometimes even higher, Malhotra said.

 

"As long as monetary policy transmission is happening... I want to again reiterate that we will provide sufficient liquidity so that the monetary policy transmission happens. So that's why it is a little surplus, it is on the higher side. Otherwise, you don't need so much of a liquidity," Malhotra said. "Perhaps, you can do with lower than the kind of liquidity that we have been providing as of now, which is not of the order of 1%, but which has been of the order of between 0.6% and 1% or so and sometimes going above also. I think with this 1.5 lakh (INR 1.50 trillion) it will go beyond 1%, so that's the range we're looking at." 

 

Malhotra said that more than the exact NDTL percentage being targeted, sufficient liquidity for bank reserves with the RBI was important. He said he is not targeting an exact number for liquidity, but "giving confidence to the system" that there will be enough liquidity in the rate-easing cycle. The governor said the central bank continues to maintain "ample" and "sufficient" liquidity.

 

As for OMO purchases, Malhotra said the central bank will not buy state bonds through this method. The RBI will conduct an INR-500-billion OMO purchase auction Thursday as well as on Dec. 18. The details of the bonds chosen for Thursday's auction were expected after 1700 IST, as Malhotra said they would be known in "a few hours". After 1700 IST, the RBI said it would buy seven gilts--the 6.75%, 2029 gilt, the 7.02%, 2031 gilt, the 7.26%, 2032 gilt, the 6.79%, 2034 gilt, the 7.54%, 2036 gilt, the 6.92%, 2039 gilt, and the 6.67%, 2050 gilt.

 

Malhotra said OMO auctions and the dollar-rupee buy-sell swap are not for pulling bond yields lower but primarily for liquidity infusion. The central bank targets securities for OMO based on demand and supply, he said. Going forward, the RBI will gauge liquidity requirements to decide whether more OMO auctions are needed. One of the main reasons bond yields slumped earlier this year was because of the RBI's OMO auctions, he added.

 

"...But keep in mind also that it is primarily, ultimately, end of the day, it will be the demand and supply," the governor said. "And so, we had created that excess supply through these OMOs that we did, which pushed it (bond yields) down, which I would feel perhaps was lower than (what) otherwise they would have been."

 

He said it has been the central bank's endeavour to provide a "diversified" and "balanced" supply of gilts across tenures, depending on the needs of the economy and on demand. The average maturity of gilts has increased over the years and there was perhaps a higher concentration of long-term gilt issuances in Apr-Sept. However, going ahead, long-term gilt supply has been reduced, as seen in the Centre's Oct-Mar borrowing calendar, he said. 

Malhotra said that as per the revised liquidity management framework released in September, the central bank aims to keep the operating target--which is the weighted average call rate--at the repo rate. The new framework gives the RBI the flexibility to conduct variable rate repo and variable rate reverse repo operations of tenures depending on its liquidity forecasts, he said.  End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Reported by Cassandra Carvalho

Edited by Avishek Dutta and Rajeev Pai

 

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