India's Reserve Bank conducted buy-sell USD/INR foreign exchange swaps across multiple maturities on Wednesday, according to market traders, in operations aimed at managing system liquidity. The intervention reflects the central bank's active approach to currency market management amid ongoing rupee volatility.

Swap Operations Details

The Reserve Bank of India executed swap transactions across several maturity periods, as reported by banking sources and foreign exchange brokers. The operations covered multiple timeframes to provide comprehensive liquidity management.

Market Context and Intervention Strategy

The RBI's swap operations occur against the backdrop of sustained pressure on the Indian rupee, which has necessitated increased central bank intervention in foreign exchange markets. These interventions typically involve the sale of US dollars to support the domestic currency, a strategy that has secondary effects on domestic liquidity conditions.

Such dollar-selling interventions tend to drain rupee liquidity from the banking system, making swap operations a crucial tool for liquidity management. The multi-maturity approach allows the central bank to address both immediate and medium-term liquidity requirements across different market segments.

Operational Framework

The buy-sell swap structure enables the RBI to provide immediate dollar liquidity while simultaneously managing future currency exposure. This mechanism allows market participants to access foreign exchange liquidity while giving the central bank flexibility in managing overall market conditions.

Traders and FX brokers confirmed the operations across the specified maturity periods, indicating coordinated intervention across multiple market segments. The comprehensive approach suggests the RBI's commitment to maintaining orderly market conditions while addressing liquidity management objectives.

Indian government bonds gained ground early Wednesday, driven by growing trader expectations of Reserve Bank of India intervention through secondary market purchases and potential additional open market operations. The benchmark 10-year 6.48% 2035 bond yield improved to 6.6658% as of 10:12 a.m. IST, compared to Tuesday's closing level of 6.6722%.

Bond Market Performance

The following table shows the key bond market movements:

Bond yields move inversely to prices, indicating that bond prices rose as yields declined. The 10-year bond broke a four-session losing streak on Tuesday, leading to speculation that the RBI was actively buying in the secondary market to replenish stock after ₹20,000 crores of securities matured in January.

Market Dynamics and RBI Intervention

Traders are increasingly betting on RBI intervention as the central bank navigates between managing liquidity and supporting demand in a market starved of natural buyers. A private-bank trader explained the central bank's challenging position: "The RBI is constantly making a trade off between liquidity and intervention as both the rupee and bonds need central bank support to stay afloat. So, they will have to continue open market purchases."

Investor activity data from the clearing house revealed significant institutional buying:

Scheduled RBI Operations

The RBI has scheduled bond purchases worth ₹50,000 crores on Thursday, representing the final tranche of four under its current buying schedule. Market participants are hoping the central bank will announce another round of open market operations to maintain support for the bond market.

Interest Rate Movements

India's overnight index swap rates showed mixed movements, with some receiving activity at the short-end driven by hopes of liquidity support:

Global Pressures

U.S. Treasury yields have remained elevated as investors react to turbulence in Japanese bonds and President Donald Trump's trade tensions with Europe, which continue to add pressure on Indian debt and the rupee. These global factors are contributing to the challenging environment that necessitates RBI support for domestic bond markets.

The current exchange rate stands at $1 = ₹91.0460, reflecting the broader pressures on Indian financial markets amid global uncertainties.