The Reserve Bank of India (RBI) conducted a $10 billion rupee buy-sell swap auction, receiving bids worth $22.3 billion, more than double the notified amount. The average premium of accepted bids was 592 paisa, higher than market expectations of 580-590 paisa. This was the second long-term foreign exchange swap by the RBI, and both swaps will mature in March 2028.
The swap auction is designed to tackle the persistent deficit in the banking system, which had a daily average shortage of Rs 1.6 lakh crore in March. The RBI buys dollars in exchange for rupees, infusing liquidity into the system, and then sells back the $10 billion in March 2028 at the forward rate, which is the currency exchange spot rate at that time, plus the premium.
Market participants note that the higher premiums in this auction indicate that investors are willing to pay a premium to swap their dollars, indicating a strong demand for rupees. However, the premium was lower than the previous auction, which may be a sign of market stabilization. The lower premium is seen as positive for the markets, as it indicates a more stable liquidity situation. Overall, the RBI’s buy-sell swap auction has successfully infused liquidity into the system and may help to reduce the pressure on the banking system.