While the central bank typically conducts spot-based swaps — spot against a specific forward maturity — this time it is focusing on forward-over-forward transactions, a trader said.
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The Reserve Bank of India’s latest round of foreign exchange buy/sell swap operations, likely aimed at rolling over upcoming maturities, has sent dollar/rupee forward premiums sliding to their lowest in more than a month.
The central bank has been conducting a series of buy/sell FX swaps, spanning October delivery over January to March 2027 maturities, over the last three sessions, bankers said.
In buy/sell FX swaps, the RBI buys dollars in the first leg, and the transaction is reversed at maturity of the contract.
The RBI, through its recent operations, appears to be extending the duration of its swap book by rolling over existing October forwards, bankers said.
In response, rupee forward premiums have dropped, with the implied yield on the one-year dollar/rupee forward falling 4 basis points (bps) on Wednesday to 2.18 per cent, its lowest since late August. The yield has dropped about 12 bps so far this month.
An FX swap trader at a private bank pointed out two key differences in the RBI’s latest swap operations.
While the central bank typically conducts spot-based swaps — spot against a specific forward maturity — this time it is focusing on forward-over-forward transactions, the trader said.
The other notable change was the tenor: the RBI is entering into longer-dated swaps through the first quarter of 2027, whereas typically such operations were capped at a year, the trader said.
“This looks mainly like an exercise in managing the RBI’s forward book, by extending its swap maturity profile,” the FX swap trader said.
The bankers declined to be identified since they are not authorised to speak publicly.
Managing rupee liquidity
By extending the swap maturities, the RBI is likely seeking to avoid delivering dollars on October maturities — a move that prevents a drain on rupee liquidity, Gaura Sen Gupta, economist at IDFC FIRST Bank, said.
She estimates that the reduction in the size of RBI’s forward dollar book alongside its spot intervention has already drained about ₹1.3 lakh crore from the banking system in the first half of this fiscal year.
The RBI has trimmed its forward dollar positions to $53.2 billion in August from $88.7 billion in February, latest regulatory data shows.
Published on October 8, 2025
