The Reserve Bank of India (RBI) has announced it will conduct a record $10-billion dollar/rupee buy/sell swap auction on February 28, aimed at addressing the durable liquidity requirements of the financial system. Under the swap agreement, the RBI will buy dollars for immediate delivery and sell them for delivery after three years, with the swap set to reverse on March 6, 2028.This marks the largest-ever dollar/rupee swap auction by the RBI. The move comes amid an ongoing liquidity deficit in the banking system, which has persisted since mid-December. Experts suggest this tightness is largely due to the RBI’s spot dollar sales aimed at managing the rupee’s depreciation. To mitigate the impact of these dollar sales on liquidity, the RBI has been intermittently conducting dollar/rupee swaps since December.The net liquidity injected into the system by the RBI has averaged around ₹1.53 trillion this month, indicating a persistent liquidity shortfall.
Bidding for the auction will be based on the premium that participants are willing to pay to the RBI, quoted in paisa terms to two decimal places. The auction will be conducted between 10:30 am and 11:30 am, with the results announced on the same day. The minimum bid size will be $10 million, and bids must be placed in multiples of $1 million.Eligible participants may submit multiple bids, but the total amount of bids from a single entity must not exceed the auction’s total amount. The RBI will have the discretion to accept bids that are either slightly lower or higher than the stated amount, and it reserves the right to accept or reject bids at its discretion.This follows the RBI’s earlier $5-billion dollar/rupee swap auction held on January 31, which was for a six-month duration, set to reverse on August 4.
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