Managing Liquidity and Currency Swaps: The Ghost of RBI's Past

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This chapter explores the Reserve Bank of India's strategies for managing liquidity and preventing inflation, including adjusting interest rates, conducting open market operations, and employing currency swaps. It also analyzes a recent currency swap announcement by the RBI and discusses the concept of forward rate premium and its relation to interest rate differentials.

Last month, we wrote about how the RBI is defending the rupee. It was trying hard to prevent the rupee from depreciating against the dollar. But now, a decision from the past could be coming back to haunt it. And in today’s episode for 20th October 2023 we give you a simplified version of what might be going on.