DBS Group Research economist Radhika Rao notes that the Reserve Bank of India (RBI) has revived monetary operations as the Rupee approached a record low near 97 per US Dollar (USD). The central bank announced a sizeable USD/INR buy/sell swap to manage liquidity and forward premiums, while signalling a broader toolkit including potential rate hikes, FX swaps and special deposit schemes to stabilise the currency.

RBI deploys swaps and policy signals

"The Reserve Bank of India revived monetary operations to slow rupee’s descent, after the currency came within touching distance of a record low of 97/USD this week."

"A USD/INR buy/sell swap worth ~$5bn was announced, which will manage rupee liquidity and moderate forward premiums."

"While rupee’s initial correction was viewed as a shock absorber to better reflect underlying macro shifts, authorities are concerned that unchecked FX depreciation could reinforce additional currency weakness, rather than helping to rebalance the external accounts."

"The narrative also turned cautious, with the central bank signaling an all-out effort to stabilise the currency including exploring potential rate hikes, further tranches of currency swaps, special non-resident deposit scheme and foreign currency debt to draw inflows and backstop the currency."

"Closer scrutiny of outbound FDI and encouraging exporters to channel proceeds to the onshore markets might be pursued."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)