India central bank's FX blitz drains nearly US$20 billion from surplus liquidity
Dollar-rupee swaps played a prominent role in liquidity management
The Reserve Bank of India (RBI) has significantly reduced excess liquidity in the banking system by nearly US$20 billion through various foreign exchange operations, with dollar-rupee swaps playing a prominent role. These measures, including dollar-rupee sell-buy swaps, spot dollar sales, bond sales, and variable-rate reverse repos, have more than halved the banking system's liquidity surplus, which dropped from a record 11.16 trillion rupees (US$116.10 billion) to 11.5 trillion rupees.
Economists estimate that another 1.5 trillion rupees of liquidity may be removed via bond sales and sell-buy FX swaps. The decline in liquidity has been evident in core liquidity, which strips out daily swings in cash balances to show the more persistent surplus.
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