In order to meet the durable liquidity needs of the system, the Reserve Bank of India (RBI) has said that it will inject long-term liquidity worth $5 billion into the banking system through dollar-rupee buy-sell swap for a tenure of three years. The swap auction will be held on April 23, 2019. This will be the second such auction within a month. Earlier, on March 26, the central bank had bought $5 billion through similar swap auction in a bid to ease liquidity ahead of elections.
The RBI has decided to inject Rupee liquidity for longer duration through long-term foreign exchange Buy/Sell swap in terms of its extant Liquidity Management Framework. The swap will be in the nature of a simple buy/sell foreign exchange swap from the Reserve Bank side. Under the swap, a bank would sell US dollars to the RBI and simultaneously agree to buy the same amount of US dollars at the end of the swap period.
The US Dollar amount mobilised through this auction would also reflect in RBI's foreign exchange reserves for the tenor of the swap while also reflecting in RBI's forward liabilities. It further said the market participants would be required to place their bids in terms of the premium that they are willing to pay to the RBI for the tenor of the swap, expressed in paisa terms up to two decimal places. The auction would be a multiple-price based auction -- successful bids will get accepted at their respective quoted premium.
The minimum size of each bid should be $10 million and in multiples of $1 million thereafter. The swap will increase India's foreign exchange reserves while injecting liquidity into the financial system. The auction is meant to give RBI greater flexibility in managing banking system cash while helping absorb any potential large dollar inflows, which could make the rupee rise sharply.
Start Research-backed Investing ...Now. Subscribe to Sapphire
MoneyWorks4Me is a SEBI-registered Investment Adviser (IA) dedicated to helping investors build long-term wealth through transparent, research-driven, conflict-free guidance. Founded in 2008, we started our journey as a Research Analyst (RA), providing deep fundamental analysis, intrinsic value insights, and long-term investing frameworks for Indian equities. In 2017, we transitioned to a full-fledged SEBI-registered Investment Adviser, strengthening our commitment to acting as a fiduciary—always putting the investor’s interest first.
To become India’s most trusted, research-powered fiduciary advisory platform—where every investor, regardless of experience, can make calm, confident, and well-reasoned investment decisions.
MoneyWorks4Me ensures this through: