In a move to bolster liquidity within the banking system, the Reserve Bank of India (RBI) has announced its plan to conduct a long-term USD/Rupee buy/sell swap auction. The auction, worth $5 billion, is scheduled for December 16, 2025, and is designed to provide banks with more durable Rupee liquidity amidst tight financial conditions. This measure complements other liquidity-enhancing initiatives already undertaken by the RBI, including open market operations (OMO) involving the purchase of government securities totaling ₹1 lakh crore.
The USD/INR swap auction, with a tenor of three years, will allow banks to sell US dollars to the RBI on December 18, 2025, and simultaneously agree to buy them back on December 18, 2028. This buy/sell swap injects Rupees into the financial system. This mechanism aims to manage liquidity, stabilize the Rupee, and mitigate volatility in the forex market. By supplying dollars to banks in exchange for rupees, the RBI provides short-term liquidity to the foreign exchange market without fueling inflation.
The RBI has specified that only Authorised Dealer Category-I banks are eligible to participate in the auction. Bids must quote the premium banks are willing to pay for the entire swap period, expressed in paisa terms up to two decimal places. The RBI will accept bids in descending order of the premium offered until the notified amount is reached. Successful bidders will be allotted the swap at the premium they quoted, and pro-rata allocation may be applied at the cut-off level. The minimum bid size for the swap auction is USD 10 million and in multiples of USD 1 million thereafter.
This measure is the latest in a series of steps taken by the RBI to ease liquidity pressures and ensure orderly financial conditions. The central bank had previously announced OMO purchases of government securities for an aggregate amount of ₹1 lakh crore, to be conducted in two tranches of ₹50,000 crore each on December 11 and December 18. By purchasing government bonds from the market, the RBI injects money into the banking system, boosting liquidity.
The RBI's commitment to proactively managing liquidity is further underscored by its statement that it will continue to monitor evolving liquidity and market conditions and take measures as appropriate to ensure orderly liquidity conditions. These measures are intended to strengthen monetary transmission and support market stability. A sharp fall in the Rupee often coincides with foreign investor outflows, which drain liquidity from the banking system. An OMO purchase helps replenish this liquidity by injecting durable funds into banks.
The long-term USD/Rupee swap auction and other liquidity measures are expected to have several positive impacts. These include improving banking liquidity, enhancing monetary policy transmission, and reducing depreciation pressure on the Rupee. By ensuring that interest rates in money markets align with the RBI's policy stance, these measures support economic growth by enabling banks to lend more to businesses and industries, promoting investment and consumption. The moves also help stabilize yields and lower borrowing costs for the financial sector.
