India's central bank, the Reserve Bank of India (RBI), has conducted a foreign-exchange swap auction, injecting $5.10 billion into the financial system for the first time in five years. This move aims to mitigate a severe cash crunch affecting the banking sector.
The recent infusion raises the total amount provided to India's banking system to $7.3 billion over the past two days, as part of a broader strategy to address liquidity issues, with an overall plan of $18 billion.
The cash shortage has been attributed to the RBI's interventions in the foreign exchange market and significant tax outflows, resulting in a liquidity deficit not seen in over a decade, which poses risks to economic growth.
During the USD/INR buy-sell swap auction, the RBI received bids worth $25.59 billion, significantly exceeding the amount offered. The swap arrangement involves purchasing US dollars from banks in exchange for Indian rupees, effectively injecting equivalent rupee liquidity into the market.
Additionally, the RBI had previously purchased 200 billion rupees in bonds on January 30 and plans to further enhance liquidity through long-term repo operations.