RBI Cuts Repo Rate to 5.25%; Announces ₹1 Lakh Crore OMO & $5 Billion USD/INR Swap

In a major monetary policy move, the Reserve Bank of India (RBI) delivered a 25 basis point rate cut, bringing the repo rate down to 5.25%. Along with the rate reduction, RBI also announced two powerful liquidity measures — ₹1 lakh crore of OMO (Open Market Operation) bond purchases and a 3-year, $5 billion USD/INR swap.
These combined policy actions signal the central bank’s strongest push yet to support growth, ease borrowing costs, stabilise liquidity, and strengthen the rupee.

Rate Cut Signals Growth Priority

The 25 bps rate cut marks a clear shift toward growth recovery. With the repo rate now at 5.25%, the RBI aims to reduce lending costs for banks, which could translate into lower EMIs for consumers and improved funding conditions for corporates.

The central bank emphasised that domestic demand is stable, but global uncertainties, softening inflation, and the need to support investment cycles justify the calibrated easing.
A rate cut of this scale was widely anticipated by market participants, but pairing it with liquidity measures took many by surprise.

₹1 Lakh Crore OMO Purchases: Big Liquidity Injection

RBI’s announcement of ₹1,00,000 crore worth of OMO bond purchases is one of the largest liquidity operations in recent times. Through OMOs, the central bank buys government securities directly from the market, injecting fresh liquidity into the financial system.

Why this matters for markets:

• Banks get additional liquidity, enabling easier credit flow.

• Bond yields are likely to soften due to the RBI’s large-scale buying.

• NBFCs and corporates benefit from lower market borrowing costs.

• Higher liquidity supports equity sentiment and helps reduce volatility.

This OMO announcement aligns with the central bank’s strategy to maintain “orderly market conditions” while supporting the transmission of the latest rate cut.

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$5 Billion USD/INR Swap: Support for Rupee Stability

Alongside domestic liquidity measures, RBI unveiled a 3-year, $5 billion USD/INR swap facility aimed at strengthening India’s forex reserves and stabilising the rupee.

Key outcomes expected:

• Enhances RBI’s FX reserves by $5 billion.

• Provides confidence to currency markets amid global volatility.

• Helps counter short-term pressures from oil prices or foreign outflows.

• Reduces speculative pressure on the rupee-dollar pair.

By combining a rate cut with a USD/INR swap, RBI signalled that monetary easing will not compromise currency stability.

MPC Vote Highlights Policy Coordination

All members of the Monetary Policy Committee participated in the meeting, and the decision to cut rates by 25 bps was part of the central bank’s calibrated monetary stance.

The MPC reiterated its commitment to:

• Maintaining price stability

• Supporting economic growth

• Providing liquidity comfort

• Ensuring financial stability

The dual measures — rate cut + liquidity tools — highlight a coordinated effort to manage both short-term banking liquidity and long-term interest-rate expectations.

Banking Sector Reaction

Banks are expected to respond with:

• Lower MCLR and repo-linked lending rates

• Faster credit disbursement

• Relief for MSMEs and retail borrowers

The ₹1 lakh crore OMO infusion also supports bank balance sheets by improving liquidity and reducing funding stress.
Market experts believe that banking stocks may witness near-term momentum due to the RBI’s supportive measures.

Bond Market Impact

The bond market welcomed the RBI’s strong intervention. OMO purchases worth ₹1 lakh crore will likely push yields downward, especially on 5- to 10-year tenors.

Bond market expectations:

• Softer yields due to the RBI buying

• Improved secondary market liquidity

• Lower borrowing costs for the government & corporates

The combination of rate cuts and OMO purchases creates a strong bullish setup for debt markets.

Equity Market Sentiment Turns Positive

The equity market reacted sharply to the announcement, as investors interpreted the combined measures as a decisive, pro-growth stance.
Large liquidity infusions often support broader market sentiment, especially for rate-sensitive sectors.

Sectors likely to benefit the most:

• Banks

• NBFCs

• Automobiles

• Real estate

• Infrastructure

Lower borrowing costs and abundant liquidity typically boost capex-heavy and credit-driven industries.

Macro Outlook: A Supportive Easing Cycle Begins

With this announcement, the RBI has initiated a clear easing cycle, balancing growth risks with inflation management.

Key macro signals:

• Inflation is within a comfortable range

• Growth support is now a priority

• RBI is ready to use both traditional and unconventional tools

• Liquidity will remain supportive in the coming quarters

The addition of a USD/INR swap underscores the central bank’s preparedness to handle global uncertainties effectively.

Conclusion

RBI’s decision to cut the repo rate to 5.25%, conduct ₹1 lakh crore of OMO purchases, and initiate a $5 billion USD/INR swap marks one of its most comprehensive policy moves in recent years.
This three-pronged strategy strengthens liquidity, stabilises the currency, and supports growth at a crucial time when both global and domestic conditions demand policy flexibility.

For markets, this policy package is both growth-positive and liquidity-friendly, setting the tone for a more accommodative financial environment in the months ahead.

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