RBI Deploys $5 Billion Swap Auction as Rupee Hits Record Low

The Indian rupee hit a record low of 96.95 against the US dollar on May 20, 2026, driven by rising crude oil prices, foreign fund outflows, and geopolitical tensions from the Iran conflict that began in February. The Reserve Bank of India responded with a $5 billion USD/INR buy-sell swap auction scheduled for May 26, designed to inject rupee liquidity into the banking system over a three-year tenor.

The currency partially recovered to 96.45 on May 21 after US President Donald Trump indicated that a peace deal with Iran was nearing completion, which also pushed Brent crude down approximately 5% to near $105 a barrel. The rupee had depreciated roughly 6-7% since the conflict's onset.

Beyond the swap auction, the RBI is weighing additional measures. Governor Sanjay Malhotra led internal meetings discussing interest rate hikes to widen the interest rate differential with the US and attract foreign bond inflows. Standard Chartered economists forecast 50 basis points of rate increases split between June and August, reversing their prior expectation of steady rates at 5.25%.

Commerce Minister Piyush Goyal stated that all government arms are working collectively to stabilize the currency, though he denied plans to officially restrict non-essential imports. The government has raised fuel prices and called for austerity to preserve foreign exchange.

A policy debate has emerged over the RBI's approach. Arvind Panagariya, Chairman of the Sixteenth Finance Commission, argued the central bank should allow the rupee to depreciate further rather than treat Rs 100 per dollar as an intervention trigger. The Swadeshi Jagran Manch countered that the rupee must be defended to protect India's global economic standing, advocating self-sufficiency over what it called bandaid solutions.

The RBI's foreign exchange reserves have fallen by over $25 billion in two months through direct dollar-selling interventions.