Reserve Bank Of India To Inject $10 Billion Through Forex Swap

The Reserve Bank of India (RBI) has announced a record $10 billion dollar/rupee buy/sell swap auction scheduled for February 28, 2025, aimed at addressing liquidity shortages in the banking system. Under this swap agreement, the RBI will purchase dollars for immediate delivery and sell them for a three-year period, with the swap set to reverse on March 6, 2028.

This will be the RBI’s largest dollar/rupee swap auction to date. The move comes in response to an ongoing liquidity deficit in the banking sector, which has persisted since mid-December. Experts attribute this shortage to the RBI’s spot dollar sales aimed at managing the rupee’s depreciation. To mitigate the liquidity impact of these sales, the RBI has been conducting dollar/rupee swaps intermittently since December.

Bidding for the auction will be based on the premium participants are willing to pay, quoted in paisa terms to two decimal places. The auction will take place between 10:30 am and 11:30 am, with results announced on the same day. The minimum bid size is set at $10 million, and bids must be in multiples of $1 million. Participants can submit multiple bids, but the total value of bids from a single entity cannot exceed the auction’s total amount. The RBI retains the discretion to accept or reject bids as it sees fit.

This auction follows the RBI’s $5-billion dollar/rupee swap auction held on January 31, which had a six-month duration and is set to reverse on August 4.