The Reserve Bank of India (RBI) has announced a major liquidity-enhancing measure through a long-term USD/INR buy–sell swap auction scheduled for December 16, 2025. This step reflects the central bank’s continued use of foreign exchange swap tools to manage durable liquidity and support stability in the money markets.
A USD 5 Billion Swap to Support Market Liquidity
The upcoming auction involves a USD 5 billion buy–sell FX swap with a tenor of 36 months. Bidding will take place between 10:30 AM and 11:30 AM, and settlement for the near-leg (spot) transaction is set for December 18, 2025, with the far-leg reversing exactly three years later on December 18, 2028.
Under this arrangement, eligible banks will sell US dollars to the RBI now, in exchange for rupees, and will repurchase the same amount of dollars at the end of the swap period. Such long-dated swaps help the RBI inject rupee liquidity without making permanent additions to the system.
Who Can Participate?
Participation is open exclusively to Authorized Dealer Category-I (AD-I) banks, which are already active players in India’s foreign exchange and derivative markets. These entities can place multiple bids, provided that their total bid amount does not exceed the notified USD 5 billion.
The minimum bid size has been set at USD 10 million, with additional bids allowed in increments of USD 1 million.
How the Bidding Will Work
The auction will follow a multiple-price system, meaning successful bidders receive allotments at the exact premium they quote. Bids must specify the premium in paisa terms, up to two decimal places, which represents the cost participants are willing to pay for the swap over the three-year tenor.
After the bidding window closes, the RBI will rank all bids in descending order of the quoted premium. The cut-off premium will be the level at which cumulative bids match the notified USD amount. All bidders quoting at or above this cut-off will be successful, and pro-rata allocation may occur if several bids cluster at the cut-off point.
Settlement and Operational Details
For the first leg, the US dollar–rupee exchange will be settled at the FBIL Reference Rate for the auction date. Banks will deliver dollars to the RBI’s nostro account, and in return, rupee funds will be credited to their current account with the RBI. At maturity, banks must return the rupee funds along with the agreed premium to retrieve their dollars.
RBI has also emphasized procedural requirements:
- Settlement details must be submitted a day before the auction,
- Bids must be sent only via email on official letterheads using the prescribed format, and
- Once executed, swaps cannot be cancelled or modified.
A Tool for Stability
By conducting this long-term swap, the RBI aims to fine-tune liquidity conditions while maintaining flexibility and market discipline. These operations have become important tools for balancing foreign exchange flows and supporting smoother functioning of the financial system. The auction results will be announced on the same day, allowing markets to respond promptly.