RBI to infuse Rs 2.90 lakh crore liquidity via bond buys, USD swap

Core Insights - The Reserve Bank of India (RBI) plans to inject Rs 2.90 lakh crore of durable liquidity into the banking system through bond purchases and a dollar-rupee swap to address tight cash conditions [1][2][6] - The RBI will conduct a $10-billion buy/sell swap auction on January 13 to ease dollar liquidity [1][2] - The measures aim to stabilize yields and improve transmission across the curve, as system liquidity turned negative mid-December, pushing the weighted average call rate to 5.46%, above the 5.25% repo rate [1][2][6] Liquidity and Market Conditions - Between December 11 and 18, the RBI infused Rs 1.45 lakh crore through open market operations (OMOs) and a $5-billion swap, but liquidity tightened again due to tax outflows, leading to higher yields [2][6] - The 10-year benchmark yield has increased by 20 basis points since December 5, despite a recent quarter percentage point policy rate cut [5][6] - The benchmark yield eased to 6.63% on Tuesday from 6.66% a day earlier, after reaching 6.70%, the highest since March [6] Government Bond Sales - State governments collectively raised Rs 33,720 crore through bond sales on Tuesday at cutoff yields higher than expected, indicating adverse demand-supply conditions in the market [6] - The Bank of India raised Rs 10,000 crore in long-term infrastructure bonds at a yield of 7.23%, receiving a total of 83 bids amounting to Rs 15,305 crore, with 37 bids accepted [7]