The Reserve Bank of India’s foreign-currency liquidity swap drew more than $20 billion in inflows. The operation matters because foreign-currency swaps are part of the Reserve Bank of India’s liquidity-management toolkit and can help reduce pressure in the financial system when foreign-exchange markets tighten.
Banks and market players participated strongly in the swap. That level of participation suggests that the Reserve Bank of India’s operation found demand in the market and helped channel foreign-currency liquidity into the system.
Background and earlier position
The Reserve Bank of India uses market-based operations, including swaps, to manage liquidity and maintain orderly market conditions. In periods of pressure, a foreign-currency swap can improve access to foreign-currency liquidity without changing the basic structure of the banking system.
Why it matters for UPSC
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