RBI Injects ₹50,000 cr. Liquidity but Rejects 2040 Bond Bids

The Reserve Bank of India (RBI) conducted its latest open market operation (OMO) on January 6, 2026, injecting ₹50,000 crore into the banking system to support liquidity and ensure smooth functioning of financial markets. This marks the fourth such OMO since the December 2025 monetary policy meeting.

Under the operation, the RBI accepted the full ₹50,000 crore notified amount across various government securities, providing durable liquidity to banks and financial institutions. However, in a notable move, the central bank rejected all bids for the 8.30 % Government of India bond maturing in 2040. Traders indicated that participating banks had likely offered prices above the bond’s prevailing market levels, prompting the RBI to decline those bids. Despite this rejection, total bid interest was strong at around ₹1.32 lakh crore, reflecting active demand from market participants.

In the auction, other maturities saw meaningful uptake. For example, the 7.40 % 2035 paper attracted substantial bids, with the RBI buying nearly ₹18,897 crore of that security. Buying activity was also seen in longer-dated papers such as the 7.09 % 2054 issue, where the RBI accepted around ₹3,092 crore.

This liquidity injection forms part of a broader RBI strategy to manage market conditions and maintain orderly credit flows, particularly amid elevated government borrowing and evolving interest rate dynamics. The central bank has scheduled two more OMOs of ₹50,000 crore each on January 12 and January 22, 2026, along with a USD/INR swap auction of $10 billion on January 13, reinforcing its commitment to financial stability.

What this means for markets:

• Liquidity support: Infusion of durable liquidity helps banks meet their funding needs and can ease pressure in the money markets.
• Yield implications: OMO purchases generally push bond prices up and yields down, which can affect borrowing costs and overall interest rate trends.
• Market confidence: Strong bid activity in most securities signals continued engagement from banks and institutional investors, even as the central bank remains selective on pricing and valuations.

In sum, the RBI’s action is aimed at striking a balance between maintaining sufficient liquidity in the system while ensuring prudent pricing and market discipline for long-dated government securities.