The Reserve Bank of India (RBI) on Monday announced to conduct a $5 billion worth of USD/INR buy/sell swap on January 31, which is likely to infuse Rs 43,000 crore of liquidity into the banking system.
The regulator also announced open market operation (OMO) purchase auctions aggregating to RS 60,000 crore and a 56-day variable rate repo (VRR) auction in February. All the three measures are aimed at easing tightness in liquidity condition which is running into a deficit of over Rs 3 lakh crore.
The RBI said USD/INR buy/sell swap auction of $ 5 billion for a tenor of six months will be held on January 31, 2025.
“Buy/sell swaps, if fully subscribed, are projected to add Rs 43,000 crore of liquidity into the system,” said VRC Reddy, Head Treasury, Karur Vysya Bank. The funds will come into the system on February 4.
In the buy/sell swap, the RBI will buy $ 5 billion from banks and will give them an equivalent amount of rupee liquidity to banks. The swap will mature in six months, which means the RBI will sell $5 billion to banks, thereby taking out a similar amount of rupee liquidity from the system.
The RBI had last conducted a $5 billion of sell/buy swap on April 26, 2022 and it matured in October 2023.
The OMO purchase auctions of government securities for an aggregate amount of Rs 60,000 crore will be conducted in three tranches of Rs 20,000 crore each to be held on January 30, 2025, February 13, 2025, and February 20, 2025, the RBI said in a release.
The 56-day Variable Rate Repo (VRR) auction amounting to Rs 50,000 crore will be held on February 7, 2025.
The OMO is positive for the liquidity environment and yields. The VRR auction may witness limited interest from banks, considering the outcomes of previous auctions, Reddy said.
The deficit in the banking system liquidity widened to Rs 3.13 lakh crore on January 27. The tightness in the liquidity is due to the RBI’s continued dollar sales to curb rupee depreciation.
