MUMBAI, Dec 5 (Reuters) - The Reserve Bank of India lowered its key interest rate on Friday and announced measures to infuse up to $16 billion into the banking system this month in the form of debt purchases and a foreign exchange swap.

The RBI reduced the repo rate by 25 basis points to 5.25% and maintained its "neutral" stance, citing record low retail inflation and a benign outlook for prices.

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The central bank will conduct open-market purchases of bonds worth up to 1 trillion rupees ($11.1 billion) and a $5 billion dollar-rupee buy/sell swap, Governor Sanjay Malhotra said.

The debt purchases will be conducted on December 11 and December 18, while the three-year FX swap will take place on December 16.

"Together, these measures are growth-supportive and the evolving growth-inflation mix keeps the door open for one more rate cut. Financial conditions should, therefore, be supportive for rate transmission and for bond market sentiment," said Churchil Bhatt, executive vice president - investments at Kotak Mahindra Life Insurance.

This would be the first time since May that the central bank will conduct an OMO auction. The RBI bought bonds worth 4.84 trillion rupees between January and May.

It also conducted similar swaps worth $10 billion each in February and March to infuse rupee liquidity into the system.

"Announcing OMO perhaps suggests that RBI is cognizant of G-sec yields. In addition, the three-year FX swap suggests that RBI is aware of FX risks. They have done swaps in the past and there is possibility of more support if required," Anitha Rangan, chief economist at RBL Bank, said.

"Nevertheless, a "neutral" stance suggests that RBI is unlikely to acknowledge rate cuts once again in the near future, but the support from OMOs and FX could continue."

($1 = 90.0250 Indian rupees)

https://www.reuters.com/world/india/indias-rbi-announces-debt-purchases-fx-swap-boost-banking-system-liquidity-2025-12-05/