Priyanka Tiwari
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RBI FX Swap: In order to execute its amended open market conditions, the Reserve Bank of India auctioned off $10 billion across two 3 year dollar-rupee swaps to add long term liquidity in its balance sheet. These transactions will be settled on the 4th and 6th of March. The offer has been over subscribed 1.62 times. As reported, the Reserve Bank of India (RBI) has received, during the auction, 244 bids of which 161 for a total of 10.06 Billion USD have been accepted.
Capturing liquidity imbalance
This was the largest dollar-rupee swap auction that took place. There is a Capturing liquidity imbalance problem in the banking system. To ameliorate the concern, RBI has set out the new dollar rupee swap auction. The first auction is being conducted at a time, when the rupee is at 87.46 with respect to the dollar, amid global uncertainties. Under this system, the bank sells US dollars to the RBI and agrees to repurchase the same amount of US dollars at the end of the swap period.
Substantial Interest in Long-Term Swap Auctions Therein
Earlier in January, RBI had issued a statement declaring that they would be injecting more than Rs 1.5 lakh crore worth of liquidity into the system by various means including the swap of $5 billion or more. From Gopal Tripathi, Treasury and Capital Markets Head of Jana Small Finance Bank, ‘There is a great demand on the auction of swaps for a longer term which guarantees the system with a permanently liquid condition. RBI is aiming at a liquidity deficit of between Rs 1 - 1.5 trillion. To achieve this, OMO, FS, and if necessary CRR can be utilized.’
Motivated by Stabilization of the Indian Rupee
The Indian central bank has a policy these days of keeping a liquidity deficit so as to keep the Indian Rupee in a stable position. There is always a constant upward pressure on the value of the currency and the foremost reason for this is international instability, geo-political tensions, and the fear of US tariffs. “According to experts, in January, 2025, the liquidity deficit was Rs 3.3 trillion, the highest in the last 14 years. Even now, this deficit has remained over Rs. 1.5 trillion.” Contracts have also been observed using the OTF foreign spot rate and other services that help eliminate currency blockages.
How is a dollar-rupee swap transacted?
The Forex swap is an operation where the Reserve Bank of India acquires loans in Rupees from the banks and purchases Dollars. This tends to increase the supply of Rupees in circulation which means that there is an inflow of new money into the economy. After a stated period of time, in this case three years, the RBI sells back these dollars. The Reserve Bank of India tries to manage the exchange rate fluctuations while maintaining the foreign currency reserve.
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