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Informist, Friday, Sept. 4, 2026

 

--Dealers: RBI may conduct $5 bln-$6 bln dlr/rupee sell/buy swap auction Mon 

--Dealers: RBI likely to do more dlr/rupee sell/buy swap auctions later 

--Dealers: RBI met treasury officals Thu to discuss liquidity mgmt options 

MUMBAI – The Reserve Bank of India is likely to conduct a dollar-rupee sell-buy swap auction of $5 billion-$6 billion Monday to absorb surplus liquidity from the banking system, dealers said. At a meeting convened by the RBI Thursday on management of banking system liquidity, banks are believed to have proposed the use of foreign exchange sell-buy swaps to gradually withdraw excess rupee liquidity, they said.

 

The surplus liquidity in the banking system has surged to the highest level since January 2019, when the RBI started maintaining records of this metric. Thursday, the surplus liquidity was INR 10.31 trillion, up from INR 9.70 trillion a day earlier, as strong inflows mobilised through the central bank's FCNR(B) swap scheme added to systemic liquidity.

 

The RBI's concessional swap facility has garnered $136.4 billion, with banks raising $127.23 billion through FCNR(B) deposits despite early closure of the facility, far exceeding most market participants' expectations. The inflows have contributed to surplus liquidity in the banking system as the central bank swapped dollars raised by banks through three- to five-year FCNR(B) deposits for rupees while effectively covering the banks' entire hedging cost.

 

The central bank may start with $5 billion and, based on the market's response, increase the amount at subsequent auctions, dealers said. "I think this is the best option they have right now," a dealer at a private-sector bank said. "The variable rate reverse repo auctions are not getting fully subscribed and RBI had earlier exempted incremental FCNR(B) deposits from CRR (cash reserve ratio) and SLR (statutory liquidity ratio) requirements. Putting an iCRR (incremental CRR) will be like going back on their words."

 

At the three-day VRRR auction of INR 7.00 trillion conducted Friday, the RBI accepted all bids, adding up to INR 5.42 trillion, at a cut-off of 5.24%. Participation in the RBI's VRRR operation increased compared to previous auctions amid excess liquidity but was still not fully subscribed.

 

Dealers said the tenure of the dollar-rupee sell-buy swap auction is likely to be one year. The tenure will depend on the RBI's forward books, but it is unlikely to be less than one year, they added.

 

The RBI forward dollar positions had reached a record $137 billion at the end of July and are expected to have risen further due to flows absorbed under its concessional swap facilities.  End

 

US$1 = INR 94.4800

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Reported by Divya Moolayattil

Edited by Rajeev Pai

 

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