RBI to Conduct $5 Billion US Dollar/INR Swap Auction on May 26

Reserve Bank Conducts USD 5 Billion Buy and Sell Swap Auction to Inject Long-Term Liquidity

The Reserve Bank will conduct a USD 5 billion USD-INR buy and sell swap auction on May 26 to inject long-term liquidity in the banking system. The auction comes at a time when the Indian rupee has significantly depreciated against the US dollar amid persisting global uncertainties.

The auction is part of the Reserve Bank's efforts to review and address current and evolving liquidity conditions. In a circular, the central bank stated that it has decided to conduct a USD/INR Buy/Sell swap auction of USD 5 billion for a tenor of three years. The swap is a simple buy/sell foreign exchange swap from the Reserve Bank's side, where a bank will sell US dollars to the Reserve Bank and simultaneously agree to buy the same amount of US dollars at the end of the swap period.

Market participants will be required to place their bids in terms of the premium they are willing to pay to the Reserve Bank for the tenor of the swap, expressed in paisa terms up to two decimal places. The auction cut-off will be based on the premium, and it will be a multiple price-based auction, where successful bids will get accepted at their respective quoted premium.

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Auction Details

Under the swap auction, the minimum bid size will be USD 10 million and in multiples of USD 1 million thereafter. The Reserve Bank's move is expected to provide much-needed relief to the banking system and stabilize the currency market.