RBI’s $5 Billion Dollar/Rupee Swap: A Strategic Move to Stabilise Rupee Against Dollars

The Reserve Bank of India (RBI) has announced a $5 billion dollar/rupee Buy–Sell swap auction scheduled for December 16, 2025, intended to strengthen its ability to stabilise the rupee without drawing down India’s foreign exchange reserves. The rupee recently breached the psychologically crucial ₹90-per-dollar mark, prompting the central bank to deploy a strategy previously used in early 2025 to curb volatility.

Rupee Weakness and Market Conditions

The Indian rupee has faced persistent downward pressure throughout 2025 due to,

• Global uncertainty
• Strong US dollar cycles
• Declining energy prices but high geopolitical risk
• Investors shifting into safe-haven assets

Rupee Movement Snapshot

• Closed at: 89.8750 per dollar on December 9
• Appreciation: 20 paise from the previous close
• Year-to-date weakening: ~5% (426 paise)
• Forex reserves drop: $28.136 billion in 2025, standing at $686.227 billion as of November 28

The breach above 90 raised market alarms, signalling the need for corrective intervention.

Understanding the Dollar/Rupee Buy–Sell Swap

A Buy–Sell swap is a two-part foreign exchange operation wherein the central bank,

• Buys dollars in the spot market
• Injects rupees into the economy
• Increases its foreign currency stock
• Sells dollars in the forward market
• Commits to returning dollars at a later date (3-year tenor)
• Absorbs rupee liquidity in the future

Why This Matters

This approach helps RBI,

• Increase forex reserves today
• Intervene aggressively in the spot market without depleting reserves
• Avoid disruption to rupee liquidity
• Manage future liquidity through forward commitments

Why the RBI Is Using This Strategy Now

Market experts such as V. Rama Chandra Reddy (Karur Vysya Bank) explain that the swap allows RBI to strengthen its ability to defend the rupee while maintaining liquidity balance.

Benefits of the Swap Strategy

• More firepower for spot intervention: RBI can sell dollars to prevent overshooting of the rupee.
• No reduction in reserves: The spot purchase increases dollar stock.
• Maintains liquidity equilibrium: Injection now, absorption later.
• Stabilises exchange rate during volatile periods.
• This is crucial because India’s reserves, though comfortable, have reduced by over $28 billion this year.

Static Information

• Instrument: Dollar/Rupee Buy–Sell Swap
• Amount: $5 billion
• Auction Date: December 16, 2025
• Tenor: 3 years
• Purpose: Enhance rupee defence without reducing forex reserves
• Rupee breach: Crossed ₹90/$