The Reserve Bank of India (RBI) will settle a $5 billion dollar-rupee swap maturing on August 4, 2025, without opting for a rollover. This move reflects the central bank’s assessment that liquidity in the Indian banking system is more than sufficient and there is no immediate need to inject additional funds.
What is a Dollar-Rupee Swap?
A dollar-rupee swap is a foreign exchange transaction in which the RBI exchanges US dollars for Indian rupees, with an agreement to reverse the transaction at a pre-decided date. In January 2025, the RBI purchased US dollars from the market, providing rupee liquidity to banks in return. Now that the contract is maturing, the RBI will sell the US dollars back and absorb rupees from the system.
Why Was This Swap Introduced?
The swap was introduced in January 2025 to address a seasonal liquidity shortfall and ensure smooth banking operations between late January and May 2025. At that time, it was essential to inject liquidity so that credit flow, payment settlements, and economic activity continued without disruption.
Why No Rollover This Time?
India’s banking system is currently enjoying a liquidity surplus of over ₹3.60 lakh crore, the highest in the last four weeks. This surplus equals about 1.5% of total deposits, compared to the RBI’s comfort level of around 1%. In simple terms, there is more than enough money in the system, so an additional liquidity injection through a rollover is unnecessary.
Impact on Money Markets
The RBI’s decision is not expected to cause any significant disruption. The cash-tomorrow swap rate stands at 0.34/0.35 paisa (annualised yield of about 5.8%), only slightly higher than the interbank call rate. This indicates that markets remain confident the system can absorb the maturing swap without stress.
RBI’s Liquidity Management Approach
Under Governor Sanjay Malhotra, the RBI is maintaining a balanced approach to liquidity management. By delivering the swap without rollover, the central bank is:
- Absorbing excess rupee liquidity to prevent inflationary pressures.
- Maintaining financial stability while supporting economic growth.
- Ensuring market operations remain smooth without sudden shocks.
This decision aligns with the RBI’s broader monetary strategy — support growth while keeping inflation and interest rates stable.