On March 24, the RBI will unveil plans for a new liquidity increase, focusing on the banking industry and the rupee. Later this month, the RBI plans to hold a USD 10 billion/INR buy/sell swap auction to provide liquidity to the banking system. The RBI said in a news release that the swap auction for 36 months will take place on March 24.
The transaction will be similar to a straightforward Rbi buy/sell foreign exchange swap. A bank must agree to buy the equivalent quantity of US dollars at the end of the exchange term in addition to selling US dollars to the RBI.
To lodge their bids, market players would have to specify, up to two decimal places, the premium they are willing to pay the Reserve Bank for the swap’s tenor. The premium would determine the auction cut-off. The central bank said in a statement that the auction will be a multiple-price based auction, meaning that winning bids would be accepted at the premium that was quoted.
The central bank stated that eligible players may place multiple bids with a minimum bid size of $10 million and subsequent bids in multiples of $1 million.
According to RBI, all bids will be sorted in descending order of the swap premium quoted after the auction window closes, and the cut-off premium will be determined by taking the premium that corresponds to the auction’s announced US dollar amount. Those who have submitted bids at or over the cut-off premium are considered successful bidders. It further stated that all bids below the cut-off premium would be turned down.
In the meantime, the rupee fell 45 paise to conclude Monday at 87.33. Pressured by dollar bids sparked by the maturity of contracts in non-deliverable futures (NDF) and a slide in the Chinese yuan, this is the sharpest one-day decline since February 25.
