The swap auction is part of the central bank’s latest measures (announced on January 27, 2025) to inject Rupee liquidity aggregating about Rs 1.50 lakh crore into the banking system.

The RBI received bids from 253 participants aggregating $25.59 billion at the auction against the notified amount of $5 billion. It accepted bids aggregating $5.10 billion (injecting an equivalent amount of Rupee liquidity into Banks) at a weighted average premium of 97.72 paise.

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 the RBI along with the swap premium after six months to get the US Dollars back.

Harsimran Sahni, EVP - Head Treasury, Anand Rathi Global Finance, noted that since the market was already in deficit mode, it was expecting some action on Rupee liquidity via OMO (open market operation) purchases of Government Securities or USD/ INR Swap.

“So when the liquidity injection measures were announced by RBI, the market was already positioned accordingly or it was discounted. Therefore, not much impact was seen on the USD/INR....If RBI continues further with longer term USD/INR Swap, then rupee will gradually depreciate,” he said.

Sahni noted that the USD/INR swap liquidity injection will ease short-term liquidity in the banking system, thereby leading to lower short-term interest rates across the yield curve.

Further, the additional liquidity is expected to bring down short-term government bond yields (T-bills and short-term papers). The impact on longer-term papers may be limited unless the RBI signals further liquidity measures or cuts the repo rate in the February MPC policy.

Amit Pabari, MD, CR Forex Advisors, noted that under the swap auction, the central bank purchased spot dollars, injecting rupee liquidity, while it simultaneously sold dollars in the forwards, neutralizing the impact on the USD/INR pair.

Pabari observed that the impact of various global and domestic factors, including the Union Budget for FY26, on the rupee remains uncertain.

“Increased government spending could increase the Rupee supply, leading to depreciation. Conversely, strategic investments and policy reforms might attract FII inflows, lending support to the currency,” he said.

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