Mumbai: The Reserve Bank of India on Wednesday announced that it will conduct a USD/INR buy-sell swap auction worth $5 billion on May 26 to inject liquidity into the banking system amid evolving market conditions.
According to the central bank, the auction will be conducted for a tenor of three years and is scheduled to take place between 10:30 a.m. and 11:30 a.m. on May 26.
The near-leg or spot settlement date has been fixed as May 29, 2026, while the far-leg maturity date will be May 29, 2029.
The RBI said the decision was taken after reviewing current and evolving liquidity conditions in the financial system.
Under the swap arrangement, banks will sell US dollars to the RBI and simultaneously agree to buy back the same amount of dollars at the end of the swap tenure.
The mechanism allows the central bank to infuse rupee liquidity into the banking system while managing foreign exchange reserves.
The auction will follow a multiple price-based format, meaning successful bidders will be allotted swaps at the premium quoted by them.
Market participants will have to submit bids in terms of the premium they are willing to pay to the RBI, expressed in paisa terms up to two decimal places.
The central bank said bids would be arranged in descending order of quoted premiums after the auction window closes, and the cut-off premium would be determined based on the notified auction amount. Bids below the cut-off premium will be rejected.
Only Authorised Dealers Category-I banks will be eligible to participate in the auction. The minimum bid size has been fixed at $10 million and thereafter in multiples of $1 million.
Banks will also be allowed to submit multiple bids, although the total amount bid by a single participant cannot exceed the notified auction size.
In the first leg of the transaction, banks will sell dollars to the RBI at the Financial Benchmarks India Pvt Ltd (FBIL) reference rate prevailing on the auction date.
The RBI will credit rupee funds to the successful bidders’ current accounts, while banks will deliver dollars to the central bank’s designated account.
At the end of the swap tenure, participating banks will return the rupee liquidity along with the agreed premium to receive back the US dollars.
(IANS)
