RBI Expected to Inject Fresh Liquidity as Rupee Pressures Persist

The Reserve Bank of India is likely to pump a large amount of money into the banking system in early 2026 to ensure comfortable liquidity, according to a report by HSBC Asset Management.

The report said the central bank may inject between Rs 1.5 lakh crore and Rs 2.5 lakh crore during the January–March period of 2026 through open market purchases. These steps are usually taken to keep enough cash flowing in the system and support smooth borrowing conditions.

HSBC added that liquidity support may not stop there. Depending on movements in foreign exchange reserves, the RBI could carry out further bond purchases worth Rs 2 lakh crore to Rs 3 lakh crore during the rest of the year.

Such measures are expected to be positive for the government bond market, as increased liquidity generally improves demand for government securities and keeps borrowing costs under control.

The report also pointed out that bond markets could receive an additional boost if India gets final confirmation of its inclusion in the Bloomberg Global Aggregate Index in early 2026. If that happens, foreign investors may pour in up to USD 20 billion into Indian bonds, strengthening the market further.
On the broader economic outlook, HSBC said conditions currently favour keeping interest rates steady for an extended period. However, global uncertainties and external economic developments remain key risk factors.

As the phase of easy monetary policy nears its end, the report expects bond markets to remain volatile, with investors closely watching signals on when the RBI might eventually change its stance.

The rupee was flagged as an area of concern. HSBC said the RBI has had to carefully manage the currency amid rising demand for dollars, a widening trade gap and foreign fund outflows, all of which have put pressure on the rupee.

One positive factor could be an early trade agreement with the United States, which may help India stay competitive compared to other exporting nations.
Looking at past trends, the report noted that the rupee tends to weaken sharply every few years due to global shocks, before stabilising again. While it is hard to pinpoint exactly when the current phase will end, HSBC believes the rupee is nearing the end of its sharp fall and is likely to trade in a more stable range through most of 2026.

Also Read: India’s Q1 FY26 GDP Grows 7.8%, Five-Quarter High, Beats RBI Forecast