RBI To Inject Liquidity Through $5 Billion Dollar-Rupee Swap Auction

The Reserve Bank of India (RBI) has announced a $5 billion USD/INR buy-sell swap auction to inject long-term liquidity into the banking system. The auction is scheduled for 26 May 2026 and will carry a tenor of three years.

According to the RBI, the auction will take place between 10:30 am and 11:30 am. Banks participating in the auction will sell US dollars to the central bank and simultaneously agree to buy them back after three years. This helps the RBI add rupee liquidity to the banking system without making a permanent dent in its forex reserves.

Why RBI Is Conducting The Swap Auction

The move comes as the Indian rupee struggles against a mix of global uncertainty, elevated oil prices and persistent selling by foreign investors. The domestic currency recently slipped close to the 96.9 mark against the US dollar, leading the RBI to step up its intervention in the forex market.

Market experts believe the central bank has been selling nearly $1 billion daily from its forex reserves to curb excessive rupee volatility. However, such interventions also absorb rupee liquidity from the banking system, leading to tighter financial conditions.

Data cited by market reports showed that the banking system’s liquidity surplus has narrowed sharply to around ₹1.51 trillion in recent weeks. The RBI’s latest swap auction is expected to offset this liquidity drain and maintain adequate funding conditions for banks.

Details Of The Auction

The RBI said the swap auction will follow a multiple price-based mechanism. Participating banks will bid by quoting the premium they are willing to pay to the RBI in paisa terms up to two decimal places. Successful bidders will receive allocations at their respective quoted premiums.

The minimum bid size has been fixed at $10 million, with bids allowed in multiples of $1 million thereafter. According to the RBI, the near leg will be settled on 29 May 2026, while the far leg will mature three years later on 29 May 2029.

Also Read - Rising Gold Prices Push Gold Loan Market Close To ₹19 Lakh Crore

The RBI noted that bids would be arranged in descending order of premiums quoted by participants, and a cut-off premium would be determined based on the notified auction amount.

Sources:

NDTV Profit

Reuters