Success of India's $5-bn swap auction might spur an encore, suggest experts

The success of India’s $5 billion swap auction Tuesday will decide whether it will become a popular instrument in the central bank’s liquidity tool box.

In an unusual move, the Reserve Bank of India will buy dollars from banks for three years and offer them rupees in return. The move will bulk up the central bank’s foreign-exchange reserves while injecting cash into the banking system to ease the liquidity crunch typically seen before the fiscal year-end in March.

“Maximum demand may come from private banks that need rupee funding to expand their balance sheets,” said Ashish Vaidya, head of trading at DBS