Bloomberg: RBI Drains Liquidity With Swaps Worth at Least $10 Billion

Key Facts

The Reserve Bank of India carried out currency swaps worth at least $10 billion over the past two weeks, Bloomberg reported, citing people familiar with the transactions. The reported deals aim to absorb surplus rupees held by banks after large foreign-currency inflows added cash to the financial system. Some swaps mature in 1 to 6 months, making their initial liquidity effect temporary. An RBI spokesperson did not respond to Bloomberg's request for comment, so the amount is not an official published tally. Reuters separately reported swaps that traders believed were conducted for the RBI, without confirming the $10 billion total.

The reported drain follows a separate programme that drew dollars into India, and its inflow total differs from the value of the liquidity-draining swaps. RBI data cited by ANI put inflows through the special facility at $143.596 billion as of September 18, 2026. Foreign Currency Non-Resident deposits accounted for $132.980 billion, overseas foreign-currency borrowings for $5.320 billion and external commercial borrowings for $5.296 billion. Those are inflows under the facility, not evidence that the same amount of rupees was withdrawn by the newer swaps. Keeping incoming funds distinct from the drain explains how a large cash surplus could arise before the central bank moved to absorb part of it.

A sell-buy swap has two linked legs, which explains its initial effect on bank funding. The central bank sells dollars in the spot market and receives rupees from banks, removing those rupees from balances available for deployment. The parties also agree to reverse the exchange at maturity, shifting the return of liquidity to a later date. An RBI publication explains that foreign-currency sales reduce rupee liquidity and that swaps let the bank adjust the timing of that effect. The dollar notional describes the contract's size; the net liquidity effect also depends on settlement, the exchange rate and other monetary operations.

Market data show the size of the cash surplus facing the RBI, although no single tool explains every change. The banking system's surplus reached 11.16 trillion rupees on September 6, then fell to 4.44 trillion rupees on September 22, Reuters reported. That is a decline of about 60% from the peak, reflecting several interventions and cash flows rather than swaps alone. When banks hold excess rupees, they need less short-term borrowing and the marginal cost of funding can ease. Absorbing part of the surplus can therefore reduce downward pressure on money-market rates without, by itself, establishing a change in the official policy rate.

The RBI has also used government-bond sales to manage liquidity, a different channel from currency swaps in its settlement and maturity. ANI reported a sale of 25,000 crore rupees of securities on September 21 under a broader programme, with another tranche scheduled for September 28. Buyers pay rupees for the bonds, lowering cash available to the banking system at settlement without a reversing leg in the same transaction. The comparison clarifies the difference between an instrument that reverses at maturity and one that transfers bonds from the central bank to investors. It also shows why before-and-after liquidity figures cannot isolate the amount absorbed by swaps.

Potential effects have appeared in the forward-currency market, where swap pricing responds to the supply of dollars and rupees across maturities. Reuters said traders observed increases of about 2.5 and 4 paise in near-term forward premiums on September 9 as they detected activity they attributed to the RBI. Bloomberg reported that rates on dollar-rupee contracts maturing in 3 to 6 months rose during September, with its sources linking the moves to central-bank activity. These are attributed market observations, not independent confirmation of the reported transaction total or proof that swaps alone moved prices. For a company hedging future dollar payments, a higher forward premium can change protection costs even if the rupee's eventual direction remains uncertain.

A swap's temporary design does not mean foreign-exchange reserves are absent from the transaction or that its accounting effect is nil. When the central bank delivers dollars in the spot leg, its immediately available dollar holdings change, while a contractual obligation to buy the currency back is created. The RBI's official explanation says delivered foreign-exchange transactions and swaps can appear in reserves and forward positions during a contract's life. The previous article's categorical assertion that the instrument does not directly affect reserves was therefore inaccurate. Analysis must consider both the spot leg and future obligation before drawing conclusions about lasting reserves or the RBI's capacity to intervene.

The implications for a holder of rupee assets or a dollar exposure depend on the instrument actually held. Banks with surplus cash may receive a different return on deploying rupees if system liquidity falls and short-term funding rates firm. An importer needing dollars forward may face a different hedge price when swap premiums move, while the operation alone cannot predict the spot exchange rate. Bond investors also need to read the liquidity withdrawal alongside government-securities sales that add paper to the market. These are possible transmission channels grounded in the reported transactions; the available evidence does not establish a specific return for any trading position.

The next scheduled milestone is September 28, when another government-bond sale tranche is due, according to ANI; the reported swaps reverse as their 1-to-6-month contracts mature. Whether the drain persists will depend on new transactions, maturing swaps and other cash flows confronting banks. More detailed RBI disclosures on operations and forward positions would provide a clearer test of Bloomberg's estimate of at least $10 billion. A sustained reduction in surplus rupees alongside orderly funding markets would support the liquidity-absorption reading, while a rapid rebound would weaken it. Until such disclosures are available, the central figure remains an attributed news estimate rather than an RBI announcement.