Central Bank Schedules 5 Billion US Dollar/INR Swap Auction on May 26

In order to inject long-term liquidity into the banking system, the Reserve Bank will hold a USD 5 billion USD/INR buy and sell swap auction the following week.

The auction, which is scheduled for May 26, occurs as the rupee has lost a lot of value relative to the American dollar in the face of ongoing global uncertainty. Explaining this, the Indian Rupee has faced persistent downward pressure, depreciating significantly against the US dollar in recent weeks due to ongoing global macroeconomic uncertainties and shifting foreign capital flows.

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By deploying this specialized monetary tool, the RBI aims to ease prolonged cash tightness within the banking network while simultaneously fortifying its foreign exchange reserves, as highlighted by the reports.

The participating commercial banks will initially sell US dollars to the RBI at the current reference rate on a spot basis during the first phase of the operation. As a result, the RBI will immediately deposit the corresponding rupee liquidity into the current accounts of the successful banks.

Additionally, a reverse leg that is enforceable by law is established. The participating banks agree to buy back the exact same quantity of US dollars from the central bank at the end of the three year agreement term.