India RBI Adds $5 Billion Via Currency Swap to Boost Liquidity

India’s central bank injected $5 billion through a foreign-exchange swap auction, deploying the tool for the first time since March as signs of liquidity strain emerge among lenders.

The operation is part of the Reserve Bank of India’s to add $16 billion of liquidity into the banking system this month. In a buy-sell swap, the RBI purchases dollars from banks against rupees and agrees to sell them back at a future date — injecting rupee cash upfront.

The RBI’s swap operations and bond purchases are expected to offset the cash drain from its dollar sales as it works to stabilize a weakening rupee, Asia’s worst-performing currency this year. The measures also aim to cap market interest rates and support an economy grappling with punitive US tariffs.

Surplus funds with lenders have dropped to about 1.3 trillion rupees ($14.3 billion) this month from roughly 4 trillion rupees in early August, according to data compiled by Bloomberg Economics.

The yield on the benchmark 10-year government bond has risen about 10 basis points since Dec. 5, when the RBI cut policy rates, with traders saying the authority may be the end of its easing cycle.

The RBI received bids worth $10.35 billion at Tuesday’s dollar-rupee buy-sell swap auction — more than twice the amount it had offered to purchase.

The central bank 500 billion rupees of bonds last week and has been conducting frequent short-term cash injections in recent days.