RBI is said to conduct at least USD 10bln FX swaps to drain cash

A swap of this size signals the liquidity surplus is structural rather than frictional, since smaller or transient excesses are normally left to the variable-rate reverse repo corridor to mop up. The mechanism runs through forward premia: large buy-sell swap books compress the dollar-rupee forward curve at the tenors involved, and past operations of this kind have shown up first in onshore forward points and in banks' cost of hedging rather than in spot. The distinction worth drawing is between draining liquidity to defend the currency and draining it to tighten domestic conditions; the swap version does both at once, since it takes dollars off the market while pulling rupees out. What follows in the usual sequence is the auction calendar and cut-off premia, the reaction in short-end money market rates against the policy corridor, and whether the operation is repeated or scaled. As a report of intent rather than an announced result, the first confirmation is the formal operation announcement and its tenor structure.