The Reserve Bank of India's (RBI) upcoming maturity of a $5 billion dollar/rupee swap transaction is causing apprehension about a potential dollar shortage in the banking system. The swap, initiated in April 2022, involves the RBI selling $5 billion to banks and subsequently repurchasing the dollars on October 23.
Concerns arise from the possibility that the RBI might not roll over the transaction, potentially withdrawing $5 billion from the system. To prepare for a likely dollar shortage, banks are engaging in buy/sell swaps and charging premiums for near deliveries. This situation has led to a decline in forward premiums, affecting hedging costs for importers and exporters.