Mumbai: The RBI has taken two major steps to bring more money (liquidity) into the financial system. First, it will buy Rs 1 lakh crore worth of government bonds. Second, it will carry out a USD 5 billion,
three-year forex swap. These decisions come right after the RBI cut the repo rate by 25 bps to 5.25 percent.
Both steps increase liquidity, meaning banks and markets get more cash to work with.
Why RBI Needed to Add Money Back
Recently, the rupee was falling sharply and crossed Rs 90 per dollar. To stop the rupee from falling faster, the RBI sold dollars in the market.
But when RBI sells dollars, it pulls out cash from the system. This creates a liquidity shortage.
Now, to fix that shortage, the RBI is putting money back by buying bonds and doing the forex swap.
How This Helps the Common Man
When banks have more money, loans become cheaper and easier to get.
This means:
- Lower EMIs on home loans, car loans, and personal loans
- Cheaper loans for businesses, leading to more projects and job creation
Overall, more relief for everyday people as borrowing becomes affordable
Why This Matters for the Economy
More liquidity leads to:
- Higher demand
- Higher production
- More jobs
- Stronger economy
When interest rates fall and money flows easily, businesses can grow faster.
Impact on Bond Yields and Rupee
- Bond yields fall when RBI buys bonds because demand goes up.
- Lower bond yields usually signal lower interest rates in the future.
The rupee weakened because demand for dollars went up earlier. The forex swap helps create a balance—keeping liquidity high while ensuring the rupee doesn’t fall too sharply.
What This Means for the Stock Market
Experts say the move is very positive for markets because:
- Banks and NBFCs get cheaper funds
- Companies can borrow money at lower rates
Economic growth gets a boost
This usually leads to:
- Positive market sentiment
- Gains in banking, NBFC, real estate, and auto stocks
Stronger interest from FIIs as liquidity improves
Short term: the market may turn more bullish.
Medium term: stability and growth signals are strong.
Will This Increase Inflation?
Normally, cutting rates and increasing liquidity could increase inflation.
But RBI believes inflation is under control, so these steps are considered safe for now.
Simple One-Line Explanation
RBI is putting money back into the financial system so that the rupee stays stable, loans become cheaper, and the economy keeps moving fast.
