The Reserve Bank of India (RBI) has injected $10 billion into the financial system through a dollar/rupee swap auction. This move is aimed at addressing long-term liquidity concerns amid global financial instability.
Why Did RBI Conduct This Swap?
- Flight of Foreign Capital: Investors moving funds to the U.S. due to Trump’s corporate tax cuts & tariff wars.
- Strengthening U.S. Dollar: Global demand for USD putting pressure on the Indian Rupee.
- Liquidity Support for Banks: Ensuring domestic lenders have sufficient long-term liquidity.
How Does a Dollar/Rupee Swap Work?
- Banks Sell USD to RBI now.
- RBI Agrees to Sell Back USD at a pre-determined rate in the future.
- Impact:
- Stabilizes the rupee
- Controls inflationary pressure
- Eases liquidity constraints for banks
This is only the second time RBI has conducted such a long-duration currency swap—the first being in 2019 under similar global financial conditions.
(Source: The Hindu)
