Mumbai, May 20: The Reserve Bank of India (RBI) announced on Wednesday that it will conduct a USD/INR buy-sell swap auction worth $5 billion on May 26. This initiative aims to enhance liquidity in the banking system amid changing market conditions.
According to the central bank, the auction will be held for a three-year period and will take place between 10:30 AM and 11:30 AM on May 26.
The RBI stated that the near-leg or spot settlement date is set for May 29, 2026, while the far-leg maturity date will be May 29, 2029.
This decision was made after a review of the current and evolving liquidity situation in the financial system. Under this swap arrangement, banks will sell US dollars to the RBI and agree to repurchase the same amount of dollars upon the completion of the swap period.
This mechanism allows the central bank to inject liquidity in rupees into the banking system while managing foreign exchange reserves.
The auction will follow a multiple price-based format, meaning successful bidders will receive swaps based on the premiums they specify. Market participants must submit their bids based on the premium they are willing to pay to the RBI, expressed in two decimal places.
After the auction window closes, bids will be organized in descending order of premium, and a cut-off premium will be determined. Bids below the cut-off premium will be rejected.
Only authorized dealer category-1 banks will be eligible to participate in this auction. The minimum bid size is set at $1 million, with subsequent bids in multiples of $100,000.
Banks will be allowed to submit multiple bids, but the total bids from a single participant cannot exceed the auction’s specified amount.
In the first phase of the transaction, banks will sell dollars to the RBI at the reference rate set by Financial Benchmarks India Private Limited (FBIL) on the auction date.
The RBI will credit the rupee amount to the successful bidders’ current accounts, while banks will transfer dollars to the central bank’s designated account.
Upon the conclusion of the swap period, participating banks will return the rupee liquidity at the agreed premium and will receive US dollars in exchange.
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