RBI Rolls Out Big Liquidity Push, Rate Cut and Forex Swap to Shore Up Rupee

As the rupee slid to a record low last week, the Reserve Bank of India unveiled a major financial system support package aimed at calming markets and reducing volatility. The package includes a 25 basis point cut in the policy repo rate, a planned ₹1 lakh crore open market purchase (OMO) of government bonds this month, and a USD 5 billion dollar–rupee buy sell swap.
The OMO operation works by the RBI buying government securities from banks — a move that injects cash directly into the banking system. This infusion helps ease short term funding pressures and lowers money market rates, thereby reducing the risk of a liquidity squeeze. The central bank’s large scale intervention signals that funding markets should remain stable even amid external stress.
The dollar–rupee swap adds another layer of support — offering banks access to foreign currency liquidity while temporarily exchanging rupees for dollars. This provides a buffer against abrupt exchange rate swings. Many economists see the move as timely: inflation remains surprisingly subdued, and with the swap and liquidity injection, the RBI has provided breathing room for markets without sending confusing policy signals.
The repo rate cut, to 5.25 percent, comes at a time when inflation has cooled down significantly. For borrowers — especially those with mortgages or business loans tied to benchmark interest rates — the rate reduction promises lower borrowing costs. This dovish policy stance aligns with the RBI’s broader goal of sustaining economic growth while ensuring financial stability.
For the rupee, the immediate outlook is mixed. The measures are not guaranteed to reverse the currency’s decline — full stabilization depends heavily on how global conditions evolve. But the central bank’s twin moves — easing domestic liquidity stress and adding forex buffer — are seen as efforts to restore confidence. Observers say the measures may help reduce excessive volatility, even if a full rebound remains uncertain.
With economic headwinds abroad still looming, the RBI’s intervention reflects a pragmatic attempt to steady domestic markets. Whether the rupee recovers or merely finds a floor will depend on a combination of global dynamics and how well local policies translate under pressure.