RBI’s $10 Billion FX Swap Sees Strong Demand, More May Follow

The Reserve Bank of India successfully completed its $10 billion dollar-rupee buy-sell swap auction, attracting bids worth $16 billion, signalling strong demand from banks and corporates.

This was the RBI’s largest and longest-tenure swap auction, with a three-year maturity. While the stated aim was to ease interbank liquidity, the auction’s size and structure suggest it is also a tool to rebuild foreign exchange reserves without directly intervening in the spot market and extend the maturity profile of its’ forward book and smoothen the payable relating to forward asset liabilities.

At the end of January, the RBI’s has net short position of $77.53 billion, of which around $47 billion was in up to three-month forward contracts.

By purchasing dollars now and committing to sell them in 2028, the RBI injects rupee liquidity into a market facing close to ₹2 trillion liquidity deficit. At the same time, it boosts reserves, which have fallen by $70 billion from their peak, providing a buffer against potential capital outflows.

The success of the auction highlights strong appetite among banks and corporates with foreign currency exposures. 

The RBI’s use of longer-term swaps reflects a more layered approach to liquidity management. While conventional tools like open market operations remain available, swaps allow the central bank to manage both rupee liquidity and forward market conditions in one stroke.

With global uncertainty still elevated, the RBI may turn to more such swaps to quietly build reserves while fine-tuning liquidity. For now, markets will watch how forward premiums evolve and whether the central bank can manage this balancing act without unsettling the rupee.