The Reserve Bank of India’s 3-year dollar/rupee buy-sell swap witnessed robust appetite on Tuesday, with the auction drawing bids a little over twice the $5 billion size. The swap is part of a $16 billion liquidity injection into the banking system, aimed at boosting transmission of rate cuts to lending rates.
Strong demand at RBI FX swap auction
The RBI accepted 118 bids at the FX swap auction with the premium cut-off set at 7.65 rupees. A total of 222 bids worth $10.35 billion were received. Bankers had anticipated robust demand owing to the excess dollar liquidity in the banking system.
The settlement of the initial leg of the FX swap will take place on Thursday, through which the RBI will inject rupee liquidity into the banking system. The transaction will be reversed three years later.
RBI steps up liquidity push
The RBI, under chief Sanjay Malhotra, has aggressively added liquidity to the banking system. In its recent Monetary Policy Committee meeting, the RBI cut rates by 25 basis points, bringing the repo rate down to 5.25% from 5.50%.
This led to a total of 125 basis points repo rate cut this year.
With the inputs from Reuters