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, draining nearly US$20 billion, primarily through dollar-rupee swaps. These foreign exchange operations, which also included spot dollar sales, bond sales, and variable-rate reverse repos, have more than halved the banking system's liquidity surplus from a record high of 11.16 trillion rupees (US$116.10 billion) to 11.5 trillion rupees in recent weeks.
Economists estimate an additional 1.5 trillion rupees of liquidity may be removed through bond sales and sell-buy FX swaps. The RBI's increased reliance on FX swaps is becoming a vital liquidity management tool, pushing dollar-rupee forward premiums higher and raising the cost of hedging dollar exposure.
Written by urgent.news from The Business Times - Companies & Markets's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
