The Reserve Bank of India (RBI) will conduct a USD 5 billion USD-INR buy and sell swap auction next week to inject long-term liquidity in the banking system.
The auction start date will be May 26. The swap is in the nature of a simple buy/sell foreign exchange swap from the RBI side. A bank shall 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 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. The auction would be a multiple price-based auction, i.e., successful bids will get accepted at their respective quoted premium, as per RBI circular. Under the swap auction, minimum bid size would be USD 10 million and in multiples of USD 1 million thereafter. In the first leg of the transaction, the bank will sell US dollars to the Reserve Bank at FBIL Reference Rate of the auction date.
