Reserve Bank of India has executed short-term FX sell-buy swaps to withdraw excess rupee liquidity, selling dollars to banks and buying rupees with agreed future repurchase dates; some contracts mature in October. The operations reduce rupee liquidity while leaving the RBI with a forward dollar obligation. Three-month onshore USD/INR forward yields rose 17bp to 2.97%, six-month yields rose 11bp. Banking-system surplus liquidity has jumped to about 11 tln rupees (~$115bn) after the RBI’s recent c

Reserve Bank of India has executed short-term FX sell-buy swaps to withdraw excess rupee liquidity, selling dollars to banks and buying rupees with agreed future repurchase dates; some contracts mature in October. The operations reduce rupee liquidity while leaving the RBI with a forward dollar obligation. Three-month onshore USD/INR forward yields rose 17bp to 2.97%, six-month yields rose 11bp. Banking-system surplus liquidity has jumped to about 11 tln rupees (~$115bn) after the RBI’s recent capital-raising plan, depressing banks’ funding costs and which could exacerbate inflation risk. Bond and FX traders are monitoring after the RBI stepped up temporary liquidity-draining operations.