On December 8, 2025, the Reserve Bank of India (RBI) released a significant update outlining its plan to inject liquidity into the financial system through a long-term USD/INR buy–sell swap auction. This move, announced earlier via Press Release 2025-2026/1635 on December 5, reflects the RBI’s continued commitment to ensuring smooth liquidity conditions and maintaining stability in domestic financial markets.
Details of the Swap Auction
The upcoming auction involves a USD 5 billion buy–sell swap with a tenor of 36 months. It is scheduled for December 16, 2025, with the bidding window open from 10:30 AM to 11:30 AM. The near-leg (spot date) settlement will take place on December 18, 2025, and the far-leg settlement will occur on December 18, 2028.
In this arrangement, participating banks—specifically Authorized Dealer (AD) Category-I banks—will sell US dollars to the RBI in the first leg and repurchase the same amount of dollars at the end of the swap period, effectively providing rupee liquidity to the banking system today while locking in future dollar flows.
How the Bidding Process Works
RBI’s mechanism for the auction is a multiple-price system, ensuring transparency and market-driven pricing. Participants must quote the premium they are willing to pay, expressed in paisa terms with up to two decimal places. This premium represents the cost of obtaining dollars back after 36 months.
Once the auction ends, bids will be arranged in descending order of the quoted premium. The cut-off premium will be the level at which the total accepted bids reach the notified USD 5 billion. Bidders quoting at or above the cut-off premium will receive an allotment—potentially on a pro-rata basis if multiple bids sit precisely at the cut-off.
The minimum bid size is USD 10 million, with further bids allowed in multiples of USD 1 million. Eligible banks can submit multiple bids as long as their combined total does not exceed the notified amount.
Operational and Settlement Guidelines
RBI will settle the first leg at the FBIL Reference Rate on the auction date. Rupee funds will be credited to the successful bidders’ current accounts, while participating banks must deliver US dollars to the RBI’s nostro account.
At the end of the swap period, the reverse settlement requires banks to return the rupee amount plus the premium to reclaim their dollars. Importantly, swaps executed under this auction:
- Cannot be cancelled or modified,
- Do not require ISDA documentation, and
- Must be submitted strictly within the auction window using the designated format shared by RBI.
Why This Move Matters
Such long-term swaps are a strategic liquidity tool, helping the RBI manage durable liquidity pressures without permanently altering systemic liquidity. For banks, these swaps offer predictable future US dollar flows and access to rupee liquidity at market-determined prices. For the broader economy, they help maintain stable money-market conditions—crucial during periods of global currency volatility or domestic liquidity tightness.
By reserving the right to accept less or marginally more than the notified amount—and even reject bids without explanation—the RBI retains flexibility to calibrate liquidity injections in line with evolving market needs.