RBI Launches $10B Swap and Rs 1 Lakh Crore Bond Buy to Boost Liquidity
The Reserve Bank of India (RBI) has announced two major financial operations to manage liquidity and foreign exchange reserves. A USD 10 billion dollar-rupee swap auction will take place on February 4, alongside a government securities purchase worth Rs 1 lakh crore. Both measures aim to stabilise market conditions in early 2025.
The RBI will conduct a three-year buy/sell currency exchange auction on February 4. Under this arrangement, banks will sell US dollars to the central bank and commit to repurchasing the same amount at the swap's maturity. This move is designed to inject rupee liquidity into the system while bolstering foreign exchange reserves.
Separately, the RBI will buy government securities in two tranches. The first, worth Rs 50,000 crore, is scheduled for January 29. The second tranche of the same amount will follow on February 5. These purchases will increase the money supply by adding liquidity to the banking system. Governor Sanjay Malhotra, who has led various monetary policy operations this year, is overseeing the implementation. The measures reflect ongoing efforts to balance currency stability and domestic liquidity needs.
The currency exchange auction and securities purchase will together inject significant liquidity into India's financial system. The operations are set to run over the next two weeks, with the first tranche of bond buying beginning on January 29. Banks and market participants will closely monitor the effects on rupee liquidity and foreign exchange reserves.
