RBI $5 Billion Currency Swap Eases Bank Liquidity Squeeze

17 December 20251 min read

Why in the news

Tighter system liquidity pushed the central bank to inject rupees through a dollar-rupee swap.

Liquidity squeeze: lenders’ surplus funds dropped from ₹4 trillion to about ₹1.3 trillion ($14.3 billion).
Bond yields: the 10-year government bond yield rose roughly 10 basis points after the 5 December policy rate cut.
How rupees enter the system: when RBI buys dollars from banks against rupees, rupee cash flows into banking.

Concept: currency swap = exchange of principal and interest in different currencies for a set period.
Swap size: $5 billion.
Other uses: steadying the rupee and influencing short-term rates and credit availability.

1. How large was the currency swap RBI used to boost liquidity in December 2025?

The headline figure was a $5 billion swap; $14.3 billion is the size of banks' remaining surplus.

2. What happens at the end of a currency swap period?

A reversal agreement returns the principal at the agreed rate.

3. Why does RBI's purchase of dollars from banks against rupees raise liquidity?

Paying rupees for dollars adds rupee cash to banks.

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