The Reserve Bank of India’s special swap windows raised a cumulative $136.3 billion by end‑August exceeding market estimates by a wide margin, likely pushing foreign reserves past $750 billion and giving the central bank firepower to defend the rupee, a report said
Further, the surge has already been reflected in a shift in intervention bias as USDINR corrected sharply, testing below 95 handle to mid-94 due to strong intervention dollar sales and broader dollar swings, the report from DBS Bank said.
Nearly 92 per cent of the inflows came via FCNR(B) deposits at $126 billion, with the remainder through offshore borrowing facilities.
“Given the swap arrangement, these inflows will add to an already abundant INR liquidity backdrop, which was at a four year high this month, depressing overnight rates,” said Radhika Rao, Senior Economist and Executive Director, DBS Bank.
Organic drivers such as tax-related outflows, seasonal currency leakage, a current account deficit of about 1.1 per cent of GDP, portfolio outflows and maturity of the forward books will act as counter-balancing factors, yet concerted steps are necessary to drain the potential surge in liquidity.
The report also highlighted effects on bunched‑up deposit maturities in three‑ and five‑year tenors.
“A portion of the existing reserve stock could be earmarked against these liabilities, helping to mitigate concerns that deposit maturities or debt repayments could trigger a sharp increase in dollar demand and exert pressure on the FX market down the line,” the report said.
Traders forecasted that Rupee will fluctuate between the immediate trading band of Rs 94.10–Rs 95.50 and a decisive break below Rs 94.10 could open way to near Rs 93.50.
Market participants expect the central bank to rebuild reserves and curtail INR depreciation, while the rupee is also buoyed by broader Asian currency strength and a retreat in the dollar index, led by a yen rally.
