The Reserve Bank of India (RBI) saw a strong response to its $10 billion US dollar (USD)/rupee buy/sell swap auction of three years tenor held on Monday, with the auction being oversubscribed by about 2.22 times. The cut-off premium came in lower at 586 paise compared to 655.10 paise at the previous swap auction of similar size and duration conducted in late February. This auction is set to inject approximately ₹86,000 crore worth of liquidity into the banking system, which has been facing a deficit of ₹2.06 lakh crore.
The swap auction forms part of the RBI’s initiatives to infuse rupee liquidity into the banking system. A total of 325 participants submitted bids amounting to $22.28 billion, well above the notified amount of $10 billion. The RBI accepted bids worth $10.04 billion at a weighted average premium of 592.32 paise. In the first phase of the swap transaction, banks sold US dollars to the RBI, with the central bank crediting the equivalent amount of rupee funds to the successful bidders’ current accounts. The rupee funds, along with the swap premium, will be returned to the RBI in the second leg of the swap transaction after six months to regain the US dollars.
Overall, the auction results indicate a positive response from the market and are expected to provide a boost to the liquidity conditions in the banking sector.
