RBI Sells Dollars to Support Rupee Against Rising Oil Prices

The Reserve Bank of India (RBI) has been selling dollars to prop up the rupee, which has stayed close to 96 per US dollar. This move counters pressure from high oil prices and rising US Treasury yields.

The RBI's efforts have kept the headline exchange rate looking calm, but this comes at a cost: dollar sales drain rupee liquidity, potentially tightening short-term funding markets.

To avoid this squeeze while still signaling a desire for a steadier currency, the RBI has also used dollar-rupee swaps. These swaps add rupees back into the banking system temporarily and shift pressure to forward exchange rates instead of the spot rate.