RBI last bought government bonds in May and bought debt worth ₹5.2 lakh crore in the five months to May 2025. | Photo credit: FRANCIS MASCARENHAS
The Reserve Bank of India is likely to resume bond purchases early next year as signs of liquidity problems emerge among lenders, analysts said.
The central bank could buy around ₹1 lakh crore ($11.3 billion) worth of sovereign 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 currency 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 little room left to cut interest rates further, the central bank must resort to other measures to keep borrowing costs in check and maintain Governor Sanjay Malhotra’s plan to maintain a surplus of financial liquidity of almost 1 percent of bank deposits.
According to Bloomberg Economics, there was a bank liquidity deficit of ₹11,360 crore as of October 27, compared to a surplus of around ₹4 lakh crore in August. Tax outflows and higher demand for cash during festivals also contributed to the liquidity shortage.
Tighter cash flows could raise financing costs and limit bank lending, raising risks as high U.S. tariffs on Indian goods, the highest in Asia, weigh on economic growth.
In recent weeks, the RBI has stepped up its short-term cash injections while conducting currency swaps after currency support measures hit liquidity. In 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 bought debt worth ₹5.2 lakh crore in the five months to May 2025.
Still, the need for liquidity injections could diminish if a US-India trade deal boosts foreign inflows, according to QuantEco Research.
For the time being, analysts see the central bank returning to bond buying. The RBI left interest rates unchanged early this month, although it hinted that policymakers were open to easing in the future.
Bond purchases remain the most likely instrument for a sustainable liquidity injection, said Gaura Sen Gupta, chief economist at IDFC FIRST Bank. He added that this measure would address liquidity needs while supporting the bond market.
More stories like this are available at bloomberg.com
Published on October 29, 2025
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