ANALYSIS Will USD/INR Buy/Sell swap help battle a turbulent rupee?

Indian rupee

Even as the Reserve Bank of India (RBI) has announced a $5-billion USD/INR Buy/Sell swap auction, Governor Sanjay Malhotra clarified that the move is not aimed at curbing volatility in the rupee. Instead, the operation is intended to ease liquidity pressures in the banking system.

This suggests that the turbulence in the Indian rupee may persist in the near term, with the central bank likely to step in only during episodes of sharp volatility, experts said.

The market’s reaction underscored the limited impact of the swap announcement. The spot rupee which strengthened earlier in the day, quickly surrendered all its gains. Forward premia for 1-year and 3-year tenors initially fell by 10–15 paise but later bounced back as traders bet that pressure on the currency would continue.

The central bank, while announcing the December monetary policy, said it will conduct USD/INR Buy/Sell Swap auction on December 16, to inject durable liquidity to the banking system.

As per estimates by the experts, this auction will approximately inject Rs 45,000 crore liquidity to the banking system, which will lead to easing rates on the overnight instruments and help in better transmission of repo rate cut done by the central bank.

Why rupee is in pain?

The local currency hit its all-time low in this week and crossed 90-mark against the US dollar on persistent equity outflows and uncertainty around the India-US trade deal.

Even after this, the intervention by the RBI remained muted leading to further fall of currency.

According to Bloomberg data, the Indian rupee depreciated 4.87 percent between December 31, 2024, and December 5, 2025. It has become the worst-performing currency among Asian peers, after the Indonesian Rupiah, which depreciated 3.26 percent during same period. Philippine's Peso depreciated 1.85 percent, and Hong Kong Dollar depreciated 0.20 percent.

What did RBI governor say?

RBI Governor during post policy conference said that the central bank’s stated policy to allow the markets to determine prices. “We believe that the markets, in the long run especially, are very efficient. It's a very deep market. We saw this earlier in February.”

He added that the RBI’s effort has been always to reduce any abnormal or excessive volatility, and that is what we will continue to endeavor.