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Informist, Monday, May 25, 2026

 

By Pratiksha

 

NEW DELHI – The Reserve Bank of India's dollar-rupee buy-sell swap auction Tuesday is likely to draw strong participation from companies as well as state-owned and private-sector banks, market participants said. The central bank will conduct a $5 billion buy-sell swap auction at 1030-1130 IST Tuesday, wherein it will buy dollars for immediate delivery and sell them for delivery after three years.

 

The foreign exchange swap auction, which is aimed at injecting rupee liquidity into the banking system, will likely see strong participation due to adequate dollar liquidity with banks, dealers said. "The swap should be subscribed easily. There is ample demand," a dealer at a foreign bank said. "$5 billion is not that big a number."

 

Considering the widespread participation expected at the auction, banks are unlikely to offer to pay the RBI premiums that are significantly lower than the prevailing secondary market rates. Most market participants expect the cut-off for the swap auction to likely be 20-30 paise lower than the current premium for three-year dollar-rupee forwards, while some expect the cut-off to be broadly around the current premium level.

 

Since the auction announcement Wednesday, the premium on the three-year exact-period dollar-rupee forward contract has fallen almost 25 paise and ended at 319.00 paise on Monday. The auction cut-off will be based on the premium amount in paisa terms.

 

Market participants said dollar liquidity in the system is adequate as the RBI has sold dollars actively to support the rupee since the outbreak of the war in West Asia late February. On a gross basis, the RBI sold $29.64 billion in March, sharply higher from $13.99 billion in February, as per latest data by the RBI. 

 

Some dealers said participation by companies would also be high due to the longer tenure of the swap auction. However, they added they had expected the quantum of the auction to be higher.

 

Going ahead, market participants expect more buy-sell swap auctions by the central bank, as the apex bank looks to defend the weakening currency amid the ongoing conflict in West Asia, and especially given the RBI's large net short outstanding dollar-rupee forward book. The RBI's net outstanding sales of dollar-rupee forward contracts rose to a record high of $103.06 billion at the end of March, up $25.40 billion on month. 

 

"Rupee is expected to weaken in the near term. RBI will have to keep intervening across markets. So, such swaps may continue to happen," a dealer at a private-sector bank said. The Indian currency has been on a depreciation spree, declining almost 5% against the dollar, since the onset of the war in West Asia. The Indian unit fell to a record low of 96.9600 a dollar last week.

 

"The move is expected to inject durable rupee liquidity into the system and improve the RBI's ability to manage excessive volatility," Amit Pabari, managing director at CR Forex, said. "...overall, these measures reinforced market confidence that the RBI remains proactive and prepared to smooth excessive volatility in the currency market whenever required," he added.  End

 

US$1 = INR 95.23

 

Edited by Vandana Hingorani

 

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