The FAQs are AI-generated, and Fortune India is not responsible for its content or any associated copyright issues.
RBI announces $5 billion USD/INR swap auction on May 26, in effort to inject more liquidity into the system
/ 2 min read
Central bank wants to keep liquidity conditions comfortable due to the drag on rupee liquidity after regular forex interventions in recent days in attempt to reduce rupee volatility, say economists.
RBI $5 billion rupee-dollar swap
The Reserve Bank of India, in a move seen to inject more liquidity into the system, announced on Wednesday that it will conduct a dollar-rupee buy and sell swap auction of $5 billion on May 26 for a tenor of three years.
The auction is being done in the wake of the drag on rupee liquidity, from continued forex interventions by the RBI in recent days. The rupee has continuously fallen again the dollar since the West Asia war, hurt by rising oil price and capital fund outflows from the equity markets, pushing the central bank to intervene in the forex markets and prevent undue volatility in the rupee price.
The rupee, now at a record low of 96.82 against the dollar, is one of the worst performing currencies, having depreciated nearly 13% since FY25 and 8% since 2026.
“The swap is in the nature of a simple buy/sell foreign exchange swap from the Reserve Bank side. A bank shall sell US dollars to the Reserve Bank and simultaneously agree to buy the same amount of US dollars at the end of the swap period,” the RBI said in a press statement.
“Under the swap auction, minimum bid size would be $10 million and in multiples of $1 million thereafter, “ the RBI release said.
“The auction cut-off would be based on the premium amount in paisa terms up to two decimal points. The market participants would be required to place their bids with the premium that they are willing to pay to the Reserve Bank for the tenor of the swap expressed in paisa terms up to two decimal places,” the central bank said.
In conversation with Fortune India, HDFC Bank’s principal economist Sakshi Gupta, says: “The RBI announced a buy/sell to keep liquidity conditions comfortable in light of the drag on rupee liquidity from continued forex intervention over the last few days. Moreover, the swap could also help ease pressure on forward premiums (hedging costs) that have risen in recent days.”
Recommended Stories
Announcing details of the auction, the RBI said: “Successful bidders would be those who have placed their bids at or above the cut-off premium. All bids lower than the cut-off premium would be rejected.”
The result of the auction will be announced on the same day.