The central bank's sell-buy swaps absorbed ₹15,000 crore from the banking system this week, three traders said, blunting the rupee's slide without cutting rates.
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The Reserve Bank of India this week sold dollars in the spot market while agreeing to buy them back at a later date, a technique known as a sell-buy swap. Three traders familiar with the operations said the central bank used the tool repeatedly as the rupee tested 84.50 against the dollar. The swaps drained roughly ₹15,000 crore from the banking system, the traders estimated.
The swap structure avoids a permanent reduction in the RBI's foreign-currency reserves, which stand at $650 billion. Outright dollar sales would shrink that buffer. The technique also keeps the policy rate unchanged. A rate hike would attract capital, slowing domestic demand in the process. The swaps target the liquidity and exchange rate without the broader economic consequences of a rate move.
The rupee closed at 84.48 on Thursday, down 0.3% for the week. The intervention followed a batch of maturing non-deliverable forward contracts, which created dollar demand. One trader put the NDF book at about $15 billion. A chunk rolled off this week, pushing the spot rate to new lows.
For the market, the swap strategy signals the RBI's preference for smoothing the pace of depreciation rather than defending a hard line. The banking system had been running a surplus of about ₹2 lakh crore. The swaps mop up that excess cash while shielding the currency. Traders said they expect more such intervention if the rupee breaks 84.50. The central bank will keep the tool active until the dollar index retreats from recent highs near 106, they said.
The RBI has been spending about $3 billion to $4 billion a month to defend the currency since April. The swaps preserve that firepower. The technique also tightens money market conditions, which can squeeze speculators who are short the rupee. One trader noted that the same approach worked in 2023, when the RBI used swaps to manage rupee volatility during a period of dollar strength.
The next test comes Friday with India's industrial production data. A strong print could shift growth expectations and ease pressure on the rupee. A weak number would reinforce the case for continued intervention.
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