The Reserve Bank of India (RBI)’s forex swap auction held on Monday received strong responses, with the apex bank receiving bids worth $22.28 billion from banks, against the notified amount of $10 billion. The three-year forex swap is expected to inject nearly Rs 85,000 crore of liquidity in the banking system.
By conducting forex swap auctions, the RBI is offsetting the liquidity tightening caused by its interventions,” said V Ramachandra Reddy, head of treasury, Karur Vysya Bank. “These swaps infuse durable liquidity in the banking system.”

The RBI set the swap’s cut-off premium at Rs 5.86, lower than Rs 6.55 set for the auction of a similar size and duration held late last month. The settlement of Monday’s auction will take place on March 26 and 27.

This was the third dollar-rupee swap auction by the RBI in the past two months. The first auction of $5 billion for a tenure of six months was conducted on January 31. The second auction of $10 billion, which was held on February 28, witnessed strong response from banks, with the RBI receiving bids worth $16.23 billion.

The swap involves the apex bank purchasing dollars from banks against the rupee while contracting to sell the greenback at a future date. When the central bank buys dollars, it injects an equivalent quantum of rupee liquidity.