On February 21, 2025, the central bank, Reserve Bank of India (RBI) through a press release announced its decision to conduct a $10 billion 3-year USD/INR buy/sell swap auction on February 28. This decision aims to boost liquidity in the banking system.
Market participants will submit bids based on the premium they are willing to pay RBI for the swap’s duration. The auction cut-off will be determined from these bids. This will be the RBI’s second swap auction of 2025, following a $5.1 billion six-month swap on January 31. Through the dollar-rupee swap, RBI will purchase dollars from banks in exchange for rupees, thereby injecting liquidity into the system. After six months, RBI will resell the dollars.
The initial swap auction was part of a series of liquidity measures announced by the RBI on January 27. These included open market operations (OMO) to purchase government securities worth ₹60,000 crore in three tranches of ₹20,000 crore each. Additionally, the RBI introduced a $5 billion swap and a 56-day variable rate repo (VRR) auction for ₹50,000 crore.
As of February 20, India’s banking system liquidity was estimated to be in a deficit of approximately ₹1.7 trillion, according to market participants.
A USD/INR Buy-Sell Swap Auction is a foreign exchange (forex) tool used by the Reserve Bank of India (RBI) to regulate liquidity in the financial system. In this process, RBI purchases U.S. Dollars from banks in exchange for Rupees (the first leg), with an agreement to sell the dollars back at a specified future date along with a premium (the reverse leg).
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Investments in the securities market are subject to market risks, read all the related documents carefully before investing.
Published on: Feb 24, 2025, 8:54 AM IST
Sachin Gupta
Sachin Gupta is a Content Writer with 6+ years of experience in the stock market, including global markets like the US, Canada, and Australia. At Angel One, Sachin specialises in creating financial content that simplifies complex market trends. Sachin holds a Master's in Commerce, specialising in Economics.
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