Copyright thehindubusinessline
The Reserve Bank of India will probably resume bond purchases early next year as signs of liquidity strain emerge among lenders, analysts said. The central bank may buy around ₹1 lakh crore ($11.3 billion) of government debt in the January-March quarter, according to Aditya Birla Sun Life AMC Ltd. ICICI Securities Primary Dealership said the RBI could provide ₹1.5 lakh crore of cash through a combination of debt purchases and foreign exchange swaps. Lenders are starting to see a shortage of cash after the RBI bought the rupee to support one of Asia’s worst-performing currencies this year. With the central bank left with little space to cut interest rates further, it has to resort to other measures to keep borrowing costs in check and maintain Governor Sanjay Malhotra’s plan of maintaining a surplus financial liquidity near 1 per cent of bank deposits. According to Bloomberg Economics, there was a ₹11,360-crore deficit in banking liquidity as of October 27, compared with a surplus of some ₹4 lakh crore in August. Tax outflows and higher cash demand during festivals also contributed to liquidity shortage. Tighter cash may raise borrowing costs and constrain bank lending, heightening risks as steep US tariffs on Indian goods, the highest in Asia, weigh on economic growth. In recent weeks, the RBI has increased its short-term cash injections, while carrying out foreign-exchange swaps after its currency-support measures drained liquidity. Under the swaps, the central bank buys dollars from lenders in exchange for rupees, adding cash to the system. The central bank last bought government bonds in May and purchased debt worth ₹5.2 lakh crore in the five months to May 2025. Still, the need for liquidity injections may ease if a US-India trade deal boosts foreign inflows, according to QuantEco Research. For now, analysts see the central bank returning to buying bonds. The RBI early this month left interest rates unchanged, although it hinted policymakers were open to easing in the future. Bond purchases remain the most likely tool for durable liquidity infusion, said Gaura Sen Gupta, chief economist at IDFC FIRST Bank, adding the move would address liquidity needs while supporting the bond market. More stories like this are available on bloomberg.com Published on October 29, 2025
