RBI said to conduct at least $10 billion FX swaps to drain cash

The Reserve Bank of India (RBI) has reportedly conducted currency swaps worth at least $10 billion in recent weeks to curb excess liquidity in the financial system and mitigate inflation risks, according to individuals familiar with the matter. The sell-buy swaps, involving maturities ranging from one month to approximately six months, were conducted with financial institutions over the past two weeks.

In these transactions, the RBI sells dollars to banks in exchange for rupees, with the agreement to reverse the deal at a later date. This action effectively drains rupee liquidity from the system. The recent rates on dollar-rupee contracts maturing in three months to six months have risen, reflecting the central bank's actions.

The RBI's recent swaps are larger than previous steps publicly announced, likely due to the significant cash surplus being addressed. Typically, the RBI conducts public swap auctions in tranches of around $3 billion to $5 billion. A spokesperson for the central bank declined to comment on the matter.