This is what is happening right now since Deposit Rates>Loan demand
The Central Bank injects or sucks out money from the system by
buying or selling Govt. bonds in the bond market
Injection of liquidity: Buys Govt bonds and broadly fixed securities from financial market players like Banks, FIs, Pension fund (from household savings), Corporate treasuries (cash surplus) etc. and releases rupees.
These bonds get added to the CB balance sheet as ‘assets’
The money that these players receive as payment for selling the bonds is the currency that the CB creates in the system which added to the CB ‘liabilities’
CB sells Govt bonds to market players for the amount of money