The Reserve Bank of India (RBI) has announced a USD 5 billion dollar-rupee swap auction scheduled for May 26 to inject long-term liquidity into the banking system. The move comes at a time when the Indian rupee has weakened sharply against the US dollar amid continued global uncertainty.
The central bank said it will conduct a USD/INR buy-sell swap auction with a tenure of three years.
In a circular, the RBI said it had decided to conduct a USD 5 billion USD/INR buy-sell swap auction after reviewing current and changing liquidity conditions.
“The swap is in the nature of a simple buy/sell foreign exchange swap from the Reserve Bank side,” the central bank said.
Under the arrangement, banks will sell US dollars to the RBI and agree to buy back the same amount of dollars at the end of the three-year swap period.
The RBI said banks participating in the auction will need to place bids based on the premium they are willing to pay to the central bank for the swap period. The premium will be quoted in paisa terms, up to two decimal places.
The auction cut-off will be decided based on the premium offered.
The central bank also said this will be a multiple price-based auction, meaning successful bidders will be accepted at the premium they quote.
As per the RBI’s guidelines, the minimum bid size for the auction will be USD 10 million. Bids can then be placed in multiples of USD 1 million.
The announcement comes as the rupee has seen notable depreciation against the US currency due to ongoing global uncertainties.