RBI to conduct USD/INR swap auction of USD 5 bn to inject liquidity on 31 Jan

As part of its over Rs 1.5 lakh crore liquidity injection into the banking system, the Reserve Bank on 28 January, Tuesday, said it will conduct a USD/INR buy-sell swap auction of USD 5 billion (about Rs 43,000 crore) on 31 January.

The RBI had announced open market operations (OMO) purchase auctions of government bonds aggregating Rs 60,000 crore, variable rate repo (VRR) auction of Rs 50,000 crore and foreign exchange swap of USD 5 billion.

The decision on liquidity injections comes days ahead of RBI's next bi-monthly monetary policy in which the Monetary Policy Committee may opt for a reduction in the benchmark lending rate.

"The Reserve Bank will be conducting a USD/INR Buy/Sell swap auction of USD 5 billion for a tenor of 6 months" on 31 January, the central bank said in a statement on Tuesday, 28 January.

The swap is in the nature of a simple buy/sell foreign exchange swap from the Reserve Bank side.

A bank shall sell US dollars to the Reserve Bank and simultaneously agree to buy the same amount of US dollars at the end of the swap period.

"Under the swap auction, minimum bid size would be USD 10 million and in multiples of USD 1 million thereafter. The eligible participants are allowed to submit multiple bids. However, the aggregate amount of bids submitted by single eligible entity should not exceed the notified amount of auction," it said.

OMO purchase auctions of Government of India securities for an aggregate amount of Rs 60,000 crore in three tranches of Rs 20,000 crore each will be held on 30 January 2025, 13 February 2025 and 20 February 2025.

The 56-day variable rate repo (VRR) auction for a notified amount of Rs 50,000 crore will be held on 7 February 2025.

The RBI's proposed measures on liquidity had a positive impact on the stock market on Tuesday, though the rupee depreciated 26 paise to close at 86.57 against the US dollar.