RBI Conducts Over $2 Billion FX Swaps to Ease Liquidity Strain as Rupee Hits Record Low
The Reserve Bank of India (RBI) has carried out more than $2 billion in dollar/rupee buy-sell FX swaps over the last two days to offset the liquidity impact caused by heavy spot dollar sales, according to four bankers. The move comes as the rupee faced intensified pressure due to equity outflows, strong bullion-related dollar demand, and increased hedging activity, pushing the currency down 0.8% on Wednesday to a record low of 91.7425 per dollar.
Bankers said the RBI executed swap operations on both Tuesday and Wednesday across multiple maturities, with one estimate putting the total at over $3 billion, while others pegged it at at least $2 billion. While the RBI regularly uses FX swaps alongside spot market intervention, market participants noted that this week’s swap volumes were unusually high compared to previous periods, indicating a strategy to contain rupee volatility without worsening banking liquidity stress.
Spot intervention typically drains rupee liquidity, and traders said the RBI’s swap operations helped counter that by easing cash conditions and reducing hedging costs. India’s banking system liquidity slipped into a deficit of around 60 billion rupees ($655.4 million) on Wednesday, despite ongoing bond purchases and other measures. Meanwhile, the one-year dollar/rupee forward premium implied yield fell by about 10 basis points over the last two days, reflecting easing pressure in the forward market.
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