Key Moments
- The Reserve Bank of India moved to revive monetary operations as the Rupee traded close to 97 per USD.
- A USD/INR buy/sell swap of approximately $5 billion was announced to address Rupee liquidity and forward premiums.
- Policy signals suggested a wider stabilization toolkit, including possible rate hikes, additional FX swaps, special deposit schemes, and tighter scrutiny of outbound FDI.
RBI Acts as Rupee Tests Record Levels
DBS Group Research economist Radhika Rao reported that the Reserve Bank of India (RBI) has reactivated key monetary tools as the Indian Rupee moved close to a record low near 97 against the US Dollar (USD). The central bank’s actions were aimed at slowing the currency’s decline and addressing stresses in both spot and forward markets.
According to Rao, the RBI announced a substantial USD/INR buy/sell swap designed to influence domestic Rupee liquidity conditions and temper elevated forward premiums. This operation marked a renewed use of the central bank’s foreign exchange toolkit as pressures on the currency intensified.
Details of the FX Swap Operation
“The Reserve Bank of India revived monetary operations to slow rupee’s descent, after the currency came within touching distance of a record low of 97/USD this week.”
“A USD/INR buy/sell swap worth ~$5bn was announced, which will manage rupee liquidity and moderate forward premiums.”
| Measure | Description |
|---|---|
| USD/INR buy/sell swap | Size of approximately $5 billion aimed at managing Rupee liquidity and easing forward premiums |
| FX stabilization focus | Intervention intended to slow the Rupee’s approach toward a record low near 97 per USD |
Policy Rationale and Concerns
“While rupee’s initial correction was viewed as a shock absorber to better reflect underlying macro shifts, authorities are concerned that unchecked FX depreciation could reinforce additional currency weakness, rather than helping to rebalance the external accounts.”
Rao noted that the authorities’ perspective evolved from seeing Rupee weakness as an adjustment mechanism to viewing persistent depreciation as a potential source of instability. This shift prompted a more assertive stance from the RBI to contain currency volatility and mitigate feedback loops that could amplify downward pressure.
Broader Stabilization Toolkit in Focus
“The narrative also turned cautious, with the central bank signaling an all-out effort to stabilise the currency including exploring potential rate hikes, further tranches of currency swaps, special non-resident deposit scheme and foreign currency debt to draw inflows and backstop the currency.”
“Closer scrutiny of outbound FDI and encouraging exporters to channel proceeds to the onshore markets might be pursued.”
These signals point to a multi-pronged approach, spanning interest rate policy, foreign exchange operations, and measures to bolster capital and FX inflows. The possible focus on outbound foreign direct investment (FDI) and export proceeds underscores the RBI’s intent to influence both the flow and composition of foreign currency entering and leaving the economy.
TradingPedia.com is a financial media specialized in providing daily news and education covering Forex, equities and commodities. Our academies for traders cover 
