RBI's $5 bn swap maturity causes flutter, no major turbulence

The maturing of the Reserve Bank of India's $5 billion swap on Monday led to a surge in demand for cash dollars and a drop in the overnight swap rate, but did not cause major disruptions in the premium and spot forex markets.

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The RBI's dollar/rupee swap, executed in April 2022, was undertaken to give banks dollar liquidity, which it will now withdraw, meaning banks who had entered into the swap will have to return the dollars.

One of the ways a bank can do that is by accessing the overnight swap market to borrow dollars vis-a-vis the rupee. A fall in the swap rate means there is a high demand for dollars.