Reserve Bank of India drains 1 trillion rupees through bond sales

India’s central bank is pulling roughly $10.5 billion out of the banking system in one sweeping move. The Reserve Bank of India announced on September 11 that it will sell 1 trillion rupees in government bonds through open market operations, its most aggressive liquidity drain in recent memory. The sales will happen across three tranches: 500 billion rupees on September 17, followed by 250 billion rupees each on September 21 and September 28. It marks the RBI’s first net bond sale via OMOs since September 2024, a two-year gap that underscores just how unusual the current liquidity environment has become. Why the RBI is mopping up cash India’s banking system is swimming in money right now, and not in a way the central bank finds comfortable. Surplus liquidity has ballooned to approximately 10.25 to 11 trillion rupees, a record level that has created a peculiar problem: overnight interest rates have fallen below the monetary policy corridor floor. The liquidity deluge traces back to a successful forex mobilization scheme that allowed Indian banks to raise $127 billion. While that program accomplished its goal of boosting the RBI’s foreign reserves to unprecedented levels, the side ef...