RBI uses $10 billion dollar-rupee swaps to mop up excess liquidity
The Reserve Bank of India executed sell-buy dollar-rupee swaps worth at least $10 billion over the past two weeks to withdraw rupees from the banking system.
Over the last fortnight, the Reserve Bank of India carried out sell-buy swaps amounting to at least $10 billion, selling dollars to banks in exchange for rupees that will be returned later. By extracting rupees, the RBI seeks to reduce the unprecedented liquidity surplus that has driven down interest rates and amplified inflation concerns amid high oil prices. The swaps cover maturities from one month up to about six months, and their size surpasses the usual public auction batches of $3-5 billion.
The central bank has also been using bond sales alongside these swaps to manage the cash buildup, which earlier this month reached a record ₹11 trillion. Economists note that without such measures the surplus could have risen to around ₹15.5 trillion. A spokesperson for the RBI did not respond to a request for comment.
Why it matters
The RBI's large-scale swaps aim to tighten liquidity, helping to control inflation and stabilize borrowing costs in India.
In this story
