New Delhi, Feb 24 (KNN) In a significant move to address the banking system’s severe liquidity constraints, the Reserve Bank of India (RBI) has announced plans to inject USD 10 billion through a foreign exchange swap operation scheduled for February 28.
The central bank disclosed this initiative in a statement released on Friday, marking its second major intervention in recent weeks.
The mechanism involves the RBI purchasing U.S. dollars from commercial banks in exchange for rupees, with an agreement to reverse the transaction after three years.
This operation effectively introduces rupee liquidity equivalent to the dollar purchases into the banking system, which is currently grappling with a substantial deficit of approximately two trillion rupees, one of the most severe shortfalls witnessed in more than a decade.
This latest intervention follows a similar USD 5 billion six-month foreign exchange swap conducted late last month. The current liquidity crisis has been partially attributed to the RBI’s sustained dollar sales, aimed at protecting the rupee from volatility amid a strengthening U.S. dollar, influenced by President Donald Trump’s tariff policies.
The central bank has deployed multiple tools to address this situation, including open market bond purchases and extended-term variable repo auctions.
Despite implementing its first interest rate reduction in nearly five years earlier this month, financial analysts emphasise that additional liquidity measures are essential for these monetary policy adjustments to effectively penetrate the broader economic landscape.
The newly announced forex swap represents the RBI’s continued commitment to stabilising the banking sector’s liquidity conditions.
(KNN Bureau)
