The Reserve Bank of India (RBI) received a healthy response to the $10 billion US Dollar (USD)/ Indian Rupee (INR) buy/sell swap auction of three years tenor it conducted on Friday. The auction was oversubscribed 1.62 times.
This is the second swap auction that RBI conducted in the last one month and is part of its liquidity infusion measures. Liquidity in the banking system has been tight since mid-December 2024, with the deficit currently estimated at ₹2 lakh crore, or thereabouts.
The RBI received bids from 244 participants aggregating $16.23 billion at the auction against the notified amount of $10 billion. It accepted bids aggregating $10.06 billion (injecting equivalent amount of Rupee liquidity into Banks) at a weighted average premium of 673.29 paise. This auction infused liquidity amounting to about ₹87,000 crore into the banking system.
In the first leg of the aforementioned swap transaction, banks sold US Dollars to the RBI. The RBI will credit the Rupee funds to the current accounts of the successful bidders. In the reverse leg of the swap transaction, Rupee funds will be returned to RBI along with the swap premium to get the US Dollars back after six months.
Shrisha Acharya, Vice President – Treasury, Anand Rathi Global Finance, noted that the swap auction, which attracted healthy interest, was aimed at providing banks Rupee liquidity.
RBI last conducted a USD/INR buy/sell swap auction on January 31st. Then the auction was for six months tenor amounting to $5 billion. This auction was oversubscribed five times.
Rupee weakens
Meanwhile, the Rupee declined about 30 paise amidst the Dollar gaining strength in the wake of impending implementation of Trump tariffs on Canada and Mexico, and FPI outflows from domestic equity markets.
The Indian currency closed at 87.4950 per USD against previous close of 87.20.
Acharya noted that the RBI intervened as the Rupee slid to 87.53 against the US dollar, reflecting heightened global uncertainties.
Rahul Kalantri, VP Commodities, Mehta Equities Ltd, observed that the Rupee depreciated during the week despite a sharp drop in crude oil prices.
“The dollar index witnessed high volatility and extended its gains and closed at 107.22, with a gain of 0.76% on Thursday. Global equity markets are struggling due to Trump tariff announcements on Mexico and Canada from March 4 and supported safe-haven demand of the U.S. dollar.
“…The possibility of the Russia-Ukraine ceasefire deal and weakness in the US. 10-year bond yields could limit gains of the dollar index,” he said.
Kalantri underscored that selling pressure of the FPIs and Trump tariff fears is pressurizing the Rupee. Further, India’s widening trade deficit in January has impacted the local currency.
He expects the Rupee to remain volatile next week amid volatility in the dollar index and in the global financial markets and the pair could trade in the range of 86.85-87.70 next week.
