RBI deploys FX swaps to drain roughly $115 billion of excess liquidity
The Reserve Bank of India executed short-term dollar-rupee swap transactions, withdrawing about $115 billion in rupee liquidity from banks.
According to unnamed sources, the Reserve Bank of India has entered the market with short-term foreign-exchange swap deals, some of which are set to mature in October. In these swaps, the RBI sells dollars to commercial banks in exchange for rupees and commits to buying back the dollars later, thereby pulling liquidity from the banking system. The move targets a rupee-liquidity surplus that has expanded to roughly 11 trillion rupees, equivalent to about $115 billion, following substantial inflows from recent capital-raising measures.
The RBI declined to comment when approached for clarification. Market observers note that extensive swap auctions could push up forward premia if absorption slows, potentially raising the central bank’s cost when the contracts are renewed. Arora highlighted the risk of higher hedging expenses under such conditions.
