RBI announces 3 yr $5 Bn forex swap auction amid rupee weakness

The Reserve Bank of India (RBI) recently announced a USD 5 billion dollar-rupee swap auction scheduled for May 26 to inject durable liquidity into the banking system, as the Indian rupee continues to face pressure amid persistent global uncertainty.
According to information, RBI stated it will conduct a USD/INR buy-sell swap auction with a tenor of three years after assessing prevailing and evolving liquidity conditions in the financial system.In a circular, the RBI stated that the swap would be “in the nature of a simple buy/sell foreign exchange swap from the Reserve Bank side.” Under the mechanism, participating banks will sell US dollars to the RBI and simultaneously agree to buy back the same amount of dollars at the end of the three-year period.The move is aimed at infusing long-term rupee liquidity into the banking system while helping manage foreign exchange liquidity conditions.
According to the RBI, banks participating in the auction will have to submit bids based on the premium they are willing to pay to the central bank for the duration of the swap. The premium will be quoted in paisa terms up to two decimal places.The cut-off premium for the auction will be determined based on the bids received. The RBI also clarified that the auction will follow a multiple-price format, under which successful bidders will be allotted swaps at the premium levels quoted by them.
The minimum bid amount has been fixed at USD 10 million, with bids thereafter accepted in multiples of USD 1 million.The announcement comes at a time when the rupee has weakened sharply against the US dollar due to volatile global financial conditions, uncertainty in international markets, and sustained demand for the greenback. Market participants expect the swap auction to support systemic liquidity and help stabilise domestic financial conditions over the medium term.