Indian Rupee Drops After Big Swap
Mumbai, March 6, 2025 — The Indian rupee fell sharply Thursday after the Reserve Bank of India (RBI) launched a $10 billion foreign exchange (FX) swap. This move, aimed at boosting rupee liquidity, happened in Mumbai. It comes as the rupee faces pressure from a slowing economy and global trade fears.
Swap Sparks Currency Slide
The RBI rolled out the $10 billion swap on March 24. It’s a three-year buy-sell deal to pump cash into banks. The rupee hit 87.07 against the U.S. dollar by mid-morning, down from 86.9550 the day before. Traders say importers rushed to buy dollars after the swap, pushing the rupee lower. Forward premiums also dropped, with the three-year swap falling 25 basis points.
This isn’t the first swap this year. Since January, the RBI has injected over $21 billion into the system through bond buys and swaps. The latest swap drew bids worth $16 billion—1.6 times the offered amount. Analysts say this shows strong demand from companies hedging dollar debts and banks seeking rupee funds.
Why the Rupee Is Weak
The rupee’s decline isn’t just about the swap. India’s economy is slowing, and foreign investors have pulled out $14 billion from stocks this year. A Reuters poll this week predicts the rupee will weaken more in the coming year. Fears of a U.S.-led trade war add to the strain. The dollar has eased 3% in 2025, but the rupee hasn’t bounced back like other Asian currencies.
The RBI has been busy. It’s sold dollars in the spot market to prop up the rupee, cutting reserves from $705 billion in September to $640 billion now. Its forward dollar sales hit a record $77.5 billion in January. “The RBI is trying to balance liquidity and currency stability,” said Gaura Sengupta, chief economist at IDFC First Bank. “But forward sales just delay the hit to spot reserves.”
Liquidity Boost vs. Currency Cost
The swap aims to fix a cash crunch in banks. Since December, the system has faced tight conditions. The RBI’s earlier $5 billion swap in January helped, but not enough. This $10 billion move will add about 870 billion rupees ($10 billion) to the system next week. Bond yields dipped Thursday as traders cheered the extra cash, though some worry about the rupee’s fate.
Experts see a shift in RBI strategy. Rate cuts in February—the first in five years—need cash to work, but a weaker rupee could stoke inflation. The swap might signal the RBI is okay with a gradual rupee slide, as long as it’s controlled. Nomura analysts were surprised by the swap’s size, noting lower bids last time. They say seasonal hedging flows in March could ease pressure if the RBI keeps soaking them up.
What’s Next for India’s Currency?
The rupee’s rough ride might not end soon. Analysts expect more RBI moves to keep liquidity steady—maybe another trillion rupees by March’s end. If trade war fears grow or outflows continue, the rupee could test new lows. The RBI’s $640 billion reserves still offer a buffer, but forward sales shrink that comfort zone. Import cover, a key measure, drops from 10.7 months to 9.4 months when forwards are counted.
India’s central bank faces a tough choice: prop up the rupee or flood banks with cash. Thursday’s swap shows it’s leaning toward liquidity for now. Markets will watch closely to see if this gamble pays off—or if the rupee pays the price. The next few weeks could shape India’s economic path as global risks loom larger.