Reseve Bank of India (RBI) injected $10 billion through a foreign-exchange swap auction on Friday, stepping up efforts to quell one of the worst liquidity deficits in the financial system.
The infusion takes the amount poured into India’s banking system to about $47 billion in the past month and is part of the Reserve Bank of India’s plan to address the tightness in domestic money markets.
The swap entails the central bank purchasing dollars from banks against the rupee they hold while contracting to sell the greenback at a future date. When the central bank buys dollars, it injects an equivalent quantum of rupee liquidity. The rupee extended losses after the result of the swap was announced, with the currency down 0.3% to 87.4900 per dollar.
The cash crunch has been caused partly by the central bank’s intervention in the foreign exchange market to shield the rupee from global volatility amid US President Donald Trump’s tariffs. The shortfall threatens to hurt an already slowing economy.
Liquidity in India’s financial system has tightened significantly since late 2024, with the deficit climbing to a 14-year high of 3.3 trillion
