The Reserve Bank of India’s (RBI) decision to inject $10 billion into the country’s financial system via a dollar/rupee swap auction is a crucial move to address liquidity concerns among domestic lenders. This initiative comes amid foreign capital outflows from Indian stock markets, as global investors chase better returns in the United States, driven by corporate tax cuts and trade policies. The rupee’s depreciation against the U.S. dollar has further exacerbated liquidity constraints, making RBI’s intervention necessary.

This marks the second rupee infusion in less than a month. Unlike the first $5 billion swap on January 31, 2025, which had a six-month tenure, the latest auction has a three-year duration. Combined, these measures will inject approximately  Rs 1.3 trillion into the banking system, providing much-needed stability to India’s financial sector. Currency swaps are a standard tool used by central banks to counter liquidity shortages, stabilize local currencies, and manage inflationary pressures.

However, given India’s current economic landscape, the latest swap seems more of a defensive response than a proactive strategy. Since October 2024, the rupee has depreciated by 3.3 per cent, breaching the Rs 85 per dollar mark, and foreign investors have pulled out $31 billion from Indian equities.

Additionally, the RBI has already sold $111.2 billion—roughly 18 per cent of its foreign reserves—since December 2024 to support the rupee. With an estimated Rs 1.7 trillion liquidity shortfall, economists suggest that an additional $5 billion infusion may be required. While these interventions provide short-term relief, Indian banks must utilize this liquidity boost to sustain credit flow, investment, and employment, ensuring that India’s economic growth trajectory remains on track despite global headwinds. If leveraged effectively, this move could help push India’s GDP growth beyond 6.4 per cent, strengthening economic resilience in uncertain times.