The Reserve Bank of India’s foreign exchange operations have soaked up an estimated $20 billion of excess rupee liquidity, two bankers said, with dollar-rupee swaps playing a prominent role in liquidity management.
The RBI has used a combination of dollar-rupee sell-buy swaps, spot dollar sales, bond sales and variable-rate reverse repos in recent weeks to drain excess liquidity from the banking system.
Those measures, along with tax outflows, have more than halved the banking system’s liquidity surplus from a record ₹11.16 lakh crore ($116.10 billion) in the first week of the month.
Economists have said the decline was evident in core liquidity, which strips out daily swings in cash balances to show the more persistent surplus.
Core liquidity fell to ₹11.5 lakh crore from a peak of ₹14.2 lakh crore on September 4, according to Gaura Sengupta, Chief Economist at IDFC First Bank.
RBI net dollar sales of about $18.5 billion through spot transactions and sell-buy swaps, along with bond sales, drove the decline, she estimated.
“We estimate another ₹1.5 lakh crore of liquidity may be removed via bond sales and sell-buy FX swaps,” Sengupta said.
Economists said the nearly $20 billion drained through FX operations was the net impact, with actual dollar sales through spot transactions and sell-buy swaps likely higher.
FX swaps are becoming an increasingly important liquidity tool for the RBI, a senior treasury official at a foreign bank said, declining to be identified because he was not authorised to speak to the media.
The RBI did not immediately respond to a request for comment.
The central bank’s sell/buy swaps have pushed dollar-rupee forward premiums higher, raising the cost of hedging dollar exposure, with the one-year premium up around 50 basis points this month.
RBI’s liquidity balancing
The RBI had signalled it would use these tools, with Governor Sanjay Malhotra saying the central bank had several ways to drain surplus liquidity, including bond sales and FX swaps.
Malhotra had noted that the RBI waived cash reserve requirements on FCNR(B) deposits, suggesting a broad CRR increase was not its preferred option.
“The RBI is simultaneously calibrating liquidity while shielding the economy from potentially disruptive shocks,” said Tanay Dalal, Senior Vice President of Business and Economic Research at Axis Bank.
Published on September 29, 2026
