$10 Billion Forex Swaps: RBI Tackles Surplus Cash Amid Inflation Risks

The Reserve Bank of India (RBI) has been actively managing liquidity in the financial system by conducting currency swaps worth at least $10 billion in recent weeks. The aim is to curb inflation risks from surplus cash, which has reached a record ₹11 lakh crore ($115 billion). This move reflects the central bank's effort to balance borrowing costs and mitigate the impact of high oil prices on inflation.

The RBI conducted sell-buy swaps with lenders over the past two weeks, including deals with maturities ranging from one month to about six months. By selling dollars to banks in exchange for rupees, agreeing to reverse the deal at a later date, the central bank effectively drains rupee liquidity from the system.

Lenders have been awash with cash after the RBI's measures attracted foreign capital of over $140 billion, far exceeding official expectations. The RBI's recent swaps are larger than similar steps taken in the past few years, largely due to the scale of the cash surplus it is currently tackling.