The Reserve Bank of India may have rolled over a portion of its $5 billion foreign exchange swap that was due to mature on Oct 23 by conducting an ultra-short term swap whose maturity would augment system liquidity during the festive season amid tax outflows and currency leakage.

The RBI concluded a sell-buy foreign exchange swap on April 28, 2022, in which banks purchased US dollars from the central bank and agreed to sell the same amount of dollars at the end of the swap period. The maturity of the swap, which was due on October 23, would have released approximately 40,000 crore into the banking system as the RBI purchases dollars to inject rupee liquidity into the banking system.

"The RBI would almost certainly have rolled over a portion of the transaction because we haven't seen much upside in the dollar-rupee exchange rate." If they (the RBI) had bought dollars, the exchange rate should have been 83.25-83.30/$1, according to Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors.

"Not only has the dollar-rupee exchange rate not increased significantly, but dollars are still being sold." As a result, I believe the RBI would have rolled over the transaction. "The expected dollar shortage has not materialised," he said.

The RBI is currently faced with a difficult balance when it comes to balancing the impact of its currency market actions and their impact on liquidity in the banking system, especially since the central bank has recently flagged inflationary risks arising from excess cash in banks.