Reserve Bank of India sells 500 billion rupees in bonds to drain massive liquidity surplus

India’s central bank just pulled a lever it hasn’t touched since 2017. The Reserve Bank of India sold 500 billion rupees, roughly $5.2 billion, in government bonds on September 17 to siphon excess cash out of the banking system. It’s the first net open market operation (OMO) debt sale in nearly nine years, and it’s only the opening act. The RBI has penciled in two more rounds: 250 billion rupees each on September 21 and 28. That brings the total planned absorption to 1 trillion rupees. Why the RBI is vacuuming up cash The total liquidity surplus sits somewhere between 10.25 and 11 trillion rupees. A special foreign-exchange mobilization scheme attracted $127 billion in deposits from banks, pushing the RBI’s forex reserves to record highs, while converting those dollar inflows to rupees flooded the system with local currency. The surplus grew so large that overnight money market rates dropped below the floor of the RBI’s policy corridor, meaning the repo rate stopped effectively anchoring borrowing costs across the economy. RBI Governor Sanjay Malhotra had warned that “nothing is off the table” when it came to managing liquidity. The central bank had already tried variable-rate reve...