When Reserve Bank of India (RBI) Governor Shaktikanta Das began the monetary policy review by stating that it would reveal the central bank’s approach not only to monetary policy but also to various aspects of it, few anticipated what was to come. The surprise announcement was Open Market Operations (OMO) sales, meaning the central bank would sell government bonds from its vaults to drain excess cash from the system. This announcement had an immediate impact on bond yields, which spiked to their highest level this year. Bond yields and prices move in opposite directions, and this jump in yields meant that all the gains the government bonds had accumulated in anticipation of JPMorgan Index inclusion evaporated. The unexpected move was a shock to the market, which was factoring in bond purchases by the central bank in the second half of the fiscal year. The liquidity surplus and incomplete transmission of past rate hikes have prompted the RBI to focus on tightening liquidity conditions. However, the situation is not what the RBI intended. The ground realities contradict the stated goals of the monetary policy. The overnight call rates in August were below the repo rate, reflecting the market’s actions that went against the RBI’s intentions. Liquidity plays a crucial role in realizing the objectives of the central bank, even more so than interest rates. Unlike central banks in developed economies, the RBI actively manages currency markets, monitors bond market yields, and builds foreign exchange buffers. Moreover, the withdrawal of ₹2,000 banknotes has complicated liquidity management. While countries like the US experience record tightening, it would not be reasonable to expect the RBI to leave Indian markets in a surplus that contradicts its withdrawal of accommodation. Another complicating factor is the strong overseas fund flows into India and the expected $20 billion inflow from the inclusion of India in the JPMorgan Emerging Markets Bond Index. These fund flows may require the RBI to buy US dollars for currency management purposes, which would inject additional liquidity into the system. The RBI faces the challenging task of conducting an independent monetary policy while smoothing volatility in exchange rates and ensuring free capital flows. It is an impossible trinity to manage. Despite the initial shock it caused, the bond purchase plan announced by the RBI may have saved the market from a bigger shock later in the year, without prior notice.