After, rate cut RBI to pump almost Rs 1.5 lakh crore into banking system this month

“These measures will ensure adequate durable liquidity in the system and further facilitate monetary transmission,” Malhotra said. Monetary transmission refers to the transmission of reductions in the repo rate to borrowers through lower bank lending rates, among other channels.

While there is plenty of liquidity in the banking system, the RBI’s interventions in the foreign exchange market to stem the rupee’s fall have drained a lot of it. The average rate of interest on new loans given by banks has risen by 14 bps to 8.64 per cent in October, according to RBI data.

Along with the repo rate, the rate at which banks lend money to borrowers is dictated by the availability of liquidity, or funds. If lenders have more money to loan, they will be willing to reduce lending rates. The purchase of Central government bonds from the market — which includes banks — will see the RBI buy these securities in return for up to Rs 1 lakh crore.

Similarly, the ‘USD/INR Buy Sell swap’ will see the RBI buy dollars from banks and give them rupees in return as part of the first half of the transaction. In the second half of the transaction, three years down the line, according to the tenure of the ‘swap’ announced, the RBI will resell the dollars to the banks at a predetermined rate.

The rupee has been the worst performing Asian currency in 2025 and has hit several all-time lows. It crossed the 90-per-dollar mark earlier this week for the first time as continued delays over the announcement of a free trade agreement with the US hurt market sentiment. Foreign investors have pulled out over $18 billion from the domestic equity market so far this year. While net foreign direct investment inflows have been higher year-on-year, they remain muted.

“…the planned Rs 1.5 lakh crore of bond purchases — including Rs 0.5 lakh crore through swaps — enhance the RBI’s ability to intervene in currency markets through dollar sales without tightening domestic liquidity conditions,” Sujan Hajra, Chief Economist, Anand Rathi Group.

In the first half of FY26, the RBI has sold $44 billion of foreign currency to defend the rupee, down from nearly $400 billion in FY25. However, the impact of these sales on the availability of rupees in the domestic market — the RBI sells foreign currency and buys rupees in return to increase its demand and stop it from falling further — has been outsized.

“The more hands-off approach by RBI reflects the limited tools available to sterilise spot intervention. Indeed, this is reflected in domestic liquidity conditions, where even with lower gross dollar selling, the drain on banking system liquidity has been significant. In FY26 (till November), the liquidity drain from FX intervention is tracking at Rs 3.4 lakh crore,” Gaura Sen Gupta, Chief Economist, IDFC First Bank said in a note on Thursday.