The Reserve Bank of India (RBI) on Monday announced a second round of liquidity injection through a dollar-rupee buy-sell swap of $5 billion for a tenure of three years on 23 April. The second round of monetary expansion comes within a month of the first sell/swap action.
“In order to meet the durable liquidity needs of the system, the Reserve Bank has decided to inject rupee liquidity for longer duration through long-term foreign exchange buy/sell swap in terms of its extant liquidity management framework. The US dollar amount mobilized through this auction would also reflect in RBI’s foreign exchange reserves for the tenor of the swap while also reflecting in RBI’s forward liabilities,” RBI stated in a release.
Accordingly, RBI will conduct a dollar/rupee buy/sell swap auction of $5 billion for tenor of 3 years between 9:30 am and 11:00 am on 23 April 2019.
Market participants would be required to place their bids in terms of the premium that they are willing to pay to the RBI 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, ie, successful bids will get accepted at their respective quoted premium, says the RBI release.
The minimum size of each bid should be $10 million and in multiples of $1 million thereafter, the central bank added.
The new swap auction tool is meant to provide the central bank greater flexibility in managing banking system cash, while helping soak up any potential large dollar inflows that could make the rupee rise sharply.
This comes shortly after the RBI said last month it will conduct a dollar-rupee buy-sell swap auction of $5 billion for a tenure of three years on 26 March, the first such market sale by the central bank to mop up dollars and pump in rupees.