RBI's Liquidity Lifeline Looms: Bond Markets Bet Big on OMO Boost in December Policy

Market Expectations

Bond traders are pricing in an RBI OMO purchase announcement during the upcoming Monetary Policy Committee (MPC) meeting, driven by liquidity tightness from sustained rupee interventions. Recent RBI actions, including ₹27,280 crore in secondary market OMO buys, have marginally eased yields by 1-2 basis points and boosted system liquidity by ₹20,000-25,000 crore.​

Fund managers like Sneha A Pandey from Quantum Mutual Fund highlight that a formalized OMO calendar with specified quantum would significantly lower bond rates. This comes as overnight liquidity remains "easy" post-February lows, bolstered by prior OMOs despite outflows and forex sales.​

Policy Context

The MPC faces dueling pressures: record-low CPI inflation favoring a potential 25 bps repo rate cut (first since June), versus rupee weakness and Q2 GDP growth of 8.2%. OMO purchases would provide targeted liquidity relief without altering rates, aligning with SEBI guidelines for system resilience.​

Key Highlights

OMO Scale: Markets eye ₹1-2 lakh crore purchases for durable banking liquidity injection.​

Recent Actions: RBI conducted ₹27,280 crore OMOs in November, easing yields 1-2 bps.​

Yield Impact: Announcement expected to soften bond yields and short-term rates.​

Rate Cut Odds: 25 bps repo cut possible amid lowest CPI; status quo also likely.​

Liquidity Status: Surplus conditions persist at 1-1.5% NDTL via VRR, CRR cuts, OMOs.​

Rupee Factor: Forex interventions drained liquidity, prompting OMO expectations.​

Sources: Moneycontrol (Dec 4, 2025); Economic Times; Business Standard.​