In recent sessions, forward premiums had surged sharply, driven by a surplus of dollar liquidity in the banking system and year-end balance-sheet constraints. The spike prompted market participants to call for central bank intervention to temper conditions in the forward market.
Late on Tuesday, the RBI responded by unveiling plans for a three-year, $10 billion USD/INR buy-sell swap scheduled for next month. The operation forms part of broader liquidity management measures aimed at smoothing distortions in the currency and money markets.
The announcement, along with indications that state-run banks had already received forward premiums on the RBI’s behalf, helped pull premiums lower on Wednesday. The USD/INR January month-end forward premium eased to 41 paisa, down from Tuesday’s peak of 58 paisa, while the November month-end premium fell to 240 paisa from a recent high of 278 paisa.
“These steps will inject rupee liquidity while drawing out excess dollars,” said Amit Pabari, managing director at FX advisory firm CR Forex. “The intent is to ease tight market conditions and cool the sharp rise in forward premiums.”
In the spot market, the rupee slipped 0.1% to 89.70 per dollar. Traders expect relatively muted trading into the year-end, following the sharp swings seen earlier in December that pushed the currency to a record low of 91.0750 before it rebounded on aggressive RBI intervention.
On Wednesday, modest demand for dollars at the daily reference rate limited the rupee’s ability to benefit from a weaker U.S. currency. The dollar index hovered near a two-month low, last seen around 97.9.
Despite recent stabilization, the rupee remains under pressure over the broader year. It has fallen roughly 5% so far and ranks as the weakest performing Asian currency in 2025, weighed down by sluggish investment inflows and the impact of steep U.S. trade tariffs.