The Reserve Bank of India (RBI) has decided to conduct a Dollar (USD)/ Rupee (INR) sell-buy swap auction for $5 billion on April 26 even as the buy-swell swap auction it had conducted three years ago for a similar amount matures on April 25.

The aforementioned transactions could buoy the Rupee and suck out surplus liquidity from the banking system.

On April 25, RBI will settle the buy-sell swap it had conducted three years back by selling $5 billion and sucking out Rupee liquidity.

On April 26, the central bank will sell $5 billion under the 18-month sell-buy swap and suck out equivalent amount of liquidity.

So, roughly liquidity aggregating about ₹76,000 crore could be taken away from the banking system due to the aforementioned transactions.

“Withdrawal of liquidity due to settlement of an earlier Buy-Sell swap auction and the new Sell-Buy swap auction can aid the policy normalisation process and also support the Rupee, said a Chief Treasury Dealer with a private sector bank.

“With a view to elongating the maturity profile of forward book and smoothen the receivables relating to forward assets, it has been decided to undertake a sell/buy swap auction of $5 billion on April 26, 2022,” the central bank said in a statement. 

RBI had last conducted a USD/INR Sell Buy swap auction for a notified amount of $5 billion on March 8, 2022.

Meanwhile, the Rupee appreciated by 17 paise to close at 75.98 per Dollar on hopes of a peace deal between Russia and Ukraine.

“The USDINR pair slipped as crude oil prices fell after Shanghai, China’s financial hub, imposed a lockdown to curb a surge in COVID-19 cases, which led to renewed fears of demand destruction.

“A fall in oil prices decreases India’s import bill, which supported sentiment for the Indian currency. Moreover, investor appetite for riskier assets, including the rupee, improved on hopes of a peace deal between Russia and Ukraine,” IFA Global said in a report.