The Reserve Bank of India (RBI) will allow a $5 billion dollar-rupee swap to mature on Monday without rolling it over, as the banking system is currently flush with rupee liquidity, according to several bankers aware of the development.
This six-month buy-sell swap, initiated in January 2024, was part of the RBI’s strategy to infuse rupee liquidity into the system by purchasing dollars. Now, as the swap matures, the RBI will reverse that transaction—selling the dollars back and absorbing rupees—without creating any disruption in the money markets.
At the time of launch, the objective was to support rupee liquidity conditions, which were relatively tight. However, bankers say that with the liquidity surplus now well above the RBI’s informal comfort range, there is no need to extend the facility.
Data indicates that surplus liquidity in the banking system has risen to more than ₹3.60 lakh crore, the highest in four weeks and nearly 1.5% of total deposits. The RBI had earlier indicated a preference for maintaining surplus liquidity at approximately 1% of deposits.
Treasury officials at commercial banks say the maturing swap will help the central bank absorb some of the excess rupee liquidity without destabilizing market conditions. There have been no signs of fresh swap activity—often a precursor to a rollover—through large public sector banks.
Short-term dollar-rupee swap rates also suggest that markets remain steady. The cash-tomorrow swap rate was last quoted at 0.34/0.35 paisa, implying an annualised yield of around 5.8%, only marginally above the prevailing interbank call money rate.
The absence of volatility and the comfortable liquidity situation are seen as key reasons behind the RBI’s decision to let the swap lapse without renewal. As of Monday morning, the exchange rate stood at ₹87.4050 to the US dollar.
