To meet the sturdy liquidity wants of the system, the Reserve Bank of India (RBI) has determined to inject Rupee liquidity for longer length by way of long-term USD-INR Buy/Sell swap auction.
Accordingly, the RBI will conduct a USD-INR Buy/Sell swap auction of $10 billion for a tenor of three years.
The auction time has been fastened from 10.30 am to 11.30 am on February 28, 2025. The spot date is March 4, 2025 and the far leg date is March 6, 2028.
“The market participants will 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 RBI stated in a round.
“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,” it added.
This would be the second swap auction by the RBI in a month. On January 31, it had infused $5.1 billion by way of a six-month swap.
Commenting on the event Dilip Parmar, Research Analyst, HDFC Securities stated, “There will be a short-term positive impact on the Rupee. The swap mechanism can help stabilise the currency by providing immediate liquidity support, thereby mitigating the pressure on the rupee during periods of foreign fund outflows.”
“This temporary relief can bolster market confidence and prevent excessive volatility in the exchange rate. Spot USD INR can move towards 86.30,” he stated.
According to an RBI round, Authorised Dealers (ADs) – Category-1 banks would be the eligible entities to take part in the auction.
The swap is within the nature of a easy purchase/promote overseas alternate swap from the Reserve Bank facet. A financial institution will want to promote U.S. Dollars to the Reserve Bank and concurrently agree to purchase the identical quantity of U.S. Dollars on the finish of the swap interval.
Once the auction window is closed, all of the bids can be organized in descending order of the swap premium quoted and the cut-off premium can be arrived on the premium corresponding to the notified U.S. Dollar quantity of the auction, the RBI stated.
Successful bidders can be those that had positioned their bids at or above the cut-off premium. All bids decrease than the cut-off premium can be rejected.
Under the swap auction, the minimal bid dimension can be $10 million and in multiples of $1 million thereafter. The eligible individuals are allowed to submit a number of bids.
However, the mixture quantity of bids submitted by single eligible entity shouldn’t exceed the notified quantity of auction.
In the primary leg of the transaction, the financial institution will promote U.S. Dollars to the Reserve Bank at FBIL Reference Rate of the auction date.
The settlement of the primary leg of the swap will happen on spot foundation from the date of transaction and the Reserve Bank will credit score the Rupee funds to the present account of the profitable bidder and the bidder wants to ship U.S. Dollars into the RBI’s nostro account.
In the reverse leg of the swap transaction, Rupee funds may have to be returned to the Reserve Bank together with the swap premium to get the U.S. Dollars again, the RBI stated.
Published – February 21, 2025 11:32 pm IST
