The Reserve Bank of India (RBI) conducted a $10 billion rupee buy-sell swap auction to tackle the persisting deficit in banking system liquidity since mid-December. The auction received bids worth $22.3 billion, more than double the notified amount, with an average premium of 592 paisa, higher than market expectations of 580-590 paisa. This is the second long-term foreign exchange swap by the RBI, with both transactions set to reverse in March 2028.
The higher premiums indicate that market participants are willing to pay a premium to swap their dollars, while the lower premiums compared to the previous auction (673 paisa) are a positive sign for the market. The buy-sell swap involves the RBI buying dollars in exchange for rupees, injecting liquidity into the system, and in the second leg of the transaction, the RBI will sell back the $10 billion at the forward rate in March 2028, plus the agreed premium.
The daily average deficit in system liquidity stood at Rs 1.6 lakh crore, indicating the need for the RBI to inject more liquidity. The success of this auction is seen as a positive step, with market participants expressing their willingness to participate in the auction. The RBI’s efforts to maintain liquidity in the system are seen as crucial for maintaining financial stability and stability in the market.