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RBI Swap Auction Sees Massive Demand
26 May
Summary
- RBI's dollar/rupee swap auction attracted nearly $10 billion in bids.
- The central bank accepted 141 bids with a premium cut-off at ₹9.10.
- This action aims to inject rupee liquidity amid a weakening rupee.
The Reserve Bank of India's (RBI) three-year dollar/rupee buy-sell swap auction experienced overwhelming demand on Tuesday, attracting bids totaling approximately $9.8 billion, nearly twice the auction's intended size. The RBI accepted 141 bids, setting the premium cut-off at ₹9.10.
This financial operation occurs as the RBI actively works to stabilize the Indian rupee, which has seen a significant depreciation, even hitting a record low of 96.96 per dollar last week. The swap's initial settlement, slated for Friday, will reintroduce rupee liquidity into the banking system, a crucial step given that the system's liquidity surplus has averaged below ₹2 lakh crore this May.
The swap's conclusion also saw a flattening of the bond yield curve, with forward premiums adjusting downwards following the auction results. The three-year forward premium decreased to ₹9 from approximately $9.25 prior to the announcement.
