New Delhi, December 26
The Reserve Bank of India is expected to inject liquidity of around Rs 1.5 lakh crore to Rs 2.5 lakh crore during the first quarter of calendar year 2026 through open market operations, according to a report by HSBC Asset Management.
The report said that beyond the first quarter, the RBI may conduct additional OMOs worth Rs 2 lakh crore to Rs 3 lakh crore during the rest of 2026. This would largely depend on the extent of accretion or depletion of foreign exchange assets on the central bank's balance sheet.
It stated "We expect 1.5-2.5 lakh cr of OMO in Q1 2026, with potentially another 2-3 lakh cr OMO in the rest of the calendar year"
The report noted that such liquidity infusion could tilt the demand-supply dynamics of central government securities favourably, supporting the government bond market.
It highlighted that a key trigger for bond markets could be any confirmation of India's inclusion in the Bloomberg Global Aggregate Index in the first quarter of 2026. Such inclusion could potentially lead to foreign portfolio investor (FPI) inflows of USD 15-20 billion, creating a very positive technical backdrop for government securities.
On the macroeconomic front, the report said that conditions remain fairly supportive of keeping interest rates steady and lower for longer. However, risks continue to stem from developments in the external sector and the global environment.
As the easing cycle approaches its end, HSBC expects fixed-income markets to consolidate, with wide trading ranges and higher volatility, as market participants shift focus to the timing of a reversal in current accommodative monetary policy.
The report identified the rupee trajectory as a major concern. It said that managing the currency in 2025 has been a tricky balancing act for the RBI, with rising dollar demand, a widening trade deficit and capital outflows putting pressure on the rupee.
One key hope remains an early trade deal with the United States, which could put India in a more favourable position relative to other exporters.
HSBC noted that the rupee has historically depreciated sharply every two to three years, often driven by major global developments. After such episodes, the currency generally stabilises over the following years in line with domestic macroeconomic fundamentals.
While it is difficult to predict the exact peak of the current weakening phase, the report said India is likely closer to the end of the sharp depreciation, with the rupee expected to settle into a more stable range through the rest of 2026.
- ANI
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