The Reserve Bank will conduct a $5 billion USD-INR buy and sell swap auction next week to inject long-term liquidity in the banking system.
The auction, to be held on May 26, also comes at a time when the rupee has significantly depreciated against the American currency amid persisting global uncertainties.
“On a review of current and evolving liquidity conditions, it has been decided to conduct a USD/INR Buy/Sell swap auction of $5 billion for a tenor of three years,” the central bank said in a circular.
The swap is in the nature of a simple buy/sell foreign exchange swap from the Reserve Bank side.
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, the central bank added.
It further said the market participants would be required to place their bids in terms of the premium that 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 would be based on the premium.
It would be a multiple price-based auction — successful bids will get accepted at their respective quoted premium.
Under the swap auction, the minimum bid size would be $10 million and in multiples of $1 million thereafter.
