RBI's Dollar-Rupee Swap Auction

The Reserve Bank of India (RBI) conducted a $10 billion US dollar-rupee buy-sell swap auction for three years, attracting bids worth $16.23 billion. This reflects strong demand amid a liquidity deficit in the banking system. The auction follows a previous $5 billion infusion via a six-month swap on January 31.

Key Auction Details

• 161 out of 244 bids were accepted, totaling $10.06 billion for a three-year tenure.
• The cut-off premium was set at ₹6.55, lower than market expectations, with an average premium of ₹6.73.
• Currency swaps involve the RBI buying dollars from banks in exchange for rupees, effectively increasing rupee liquidity.

Market Observations

• Strong demand was noted from the corporate sector, with banks seeking higher premiums.
• Many banks bid conservatively due to RBI's rate cut cycle and no capital charge considerations.

Liquidity and Currency Implications

• The net liquidity deficit in the banking system stood at ₹1.81 trillion as of Thursday, persisting for eleven weeks.
• The rupee depreciated by 31 paise against the dollar due to foreign investor equity sales and trade war concerns.
• The dollar index rose to 107.37, indicating the greenback's strength against other major currencies.

RBI Interventions and Reserves

• RBI intervened in the forex market to manage volatility, with PSU banks participating actively.
• India's forex reserves increased by $4.7 billion to $640 billion, driven by a rise in foreign currency assets and gold reserves.
• The rupee appreciated by 0.14% against the dollar for the week ending February 21.