As Rupee Slips Past 90/$ Mark, RBI Announces US$5 Billion Dollar-Rupee Sell Swap

The Reserve Bank of India (RBI) has announced a US$5 billion Dollar-Rupee sell swap to stabilise the falling rupee. This move comes alongside a 25 basis point reduction in the benchmark interest rate from 5.5% to 2.5% to drive economic growth. The RBI has also raised GDP projection for FY25 to 7.3%. 

What is the Purpose of the USD-INR Sell Swap?

The primary goal of the sell swap is to stabilise the rupee and support liquidity management. In recent weeks, the rupee reached record lows, falling to 90.42 against the US Dollar before partially recovering. The swap provides a controlled supply of US Dollars to the market, helping ease pressure on the local currency.

Additionally, the swap allows banks to maintain foreign currency reserves, which supports broader financial stability and smooth functioning of foreign exchange markets. This mechanism is particularly useful for managing volatility in currency markets and ensuring adequate dollar liquidity in the banking system.

What Is a Dollar-Rupee Sell Swap?

A Dollar-Rupee sell swap is a foreign exchange transaction in which banks sell US Dollars to the RBI in exchange for Indian Rupees. Under the arrangement, the RBI will later sell the same US Dollars back to the banks at a pre-determined rate and date, usually at a slight premium.

This type of transaction is designed to manage currency and liquidity in the financial system. By temporarily reducing the amount of rupees circulating in banks, it can control inflation while also providing banks with access to US Dollars.

What Other Measures Has RBI Taken To Stabilise the Rupee?

Alongside the sell swap, the RBI also announced a ₹1 lakh crore Open Market Operation (OMO) for December. OMOs involve the purchase or sale of government securities to manage liquidity in the financial system. Together, these tools form part of the RBI’s broader strategy to maintain price stability, support economic growth, and manage currency fluctuations.

Read more: RBI Decided to Cut Repo Rate by 0.25% to 5.25%: Retains Policy Stance as Neutral.

Conclusion

The US$5 billion Dollar-Rupee sell swap is a strategic move by the RBI to manage liquidity, support the rupee, and provide banks with access to US Dollars. By carefully balancing the supply of rupees and dollars in the banking system, the RBI aims to maintain financial stability while addressing inflationary pressures in the economy.

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