RBI to Inject Liquidity with $10 Billion Swap Auction on March 24

The Reserve Bank of India (RBI) has announced a new measure to increase liquidity in the banking system. On March 24, the central bank will conduct a $10 billion USD/INR Buy/Sell swap auction to provide additional funds to banks. This auction will have a 36-month tenure, according to an official RBI statement.

How the Swap Auction Works

The auction will function as a straightforward buy/sell foreign exchange swap. Banks will sell US dollars to the RBI now and agree to buy them back at the end of the swap period.

Market participants must submit bids indicating the premium they are willing to pay, expressed in paisa terms (up to 2 decimal places). The auction will follow a multiple-price format, meaning successful bids will be accepted at their quoted premiums. The highest bids will be prioritised, and those below the cut-off premium will be rejected.

Bid Requirements

• Minimum bid size: $10 million
• Bid Increments: Multiples of $1 million
• Multiple bids: Eligible participants can submit multiple bids

Rupee Under Pressure

Ahead of the auction, the rupee weakened by 45 paise, closing at ₹87.33 on Monday—its sharpest single-day decline since February 25. The fall was driven by strong dollar demand due to maturing non-deliverable forward (NDF) positions and a drop in the Chinese yuan.

This swap auction is expected to help manage liquidity while stabilising the rupee against further depreciation.

Conclusion

With the rupee under pressure and liquidity tightening, RBI’s swap auction aims to ease funding conditions for banks. This move may help stabilise the currency and support market liquidity.

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