RBI’s second liquidity injection scheme in a month

To inject long-term liquidity worth $5 bn through swap on Apr 23

MUMBAI: Once again, the Reserve Bank India (RBI) is coming to the market on April 23 to provide long term liquidity through a similar foreign exchange buy/sell swap route the central bank had used on March 26.

The RBI said on April 1 that it will inject long-term liquidity worth $5 billion into the system through foreign exchange swap arrangement with banks for three years.

Under the swap auction, minimum bid size would be $25 million and in multiples of $1 million thereafter. The eligible participants are allowed to submit multiple bids. However, the aggregate amount of bids submitted by single eligible entity should not exceed the notified amount of auction.

In the first leg of the transaction, the bank will sell US dollars to the Reserve Bank at Financial Benchmarks India Pvt Ltd (FBIL) Reference Rate of the auction date. The settlement of the first leg of the swap will take place on spot basis from the date of transaction and the Reserve Bank will credit the rupee funds to the current account of the successful bidder and the bidder needs to deliver US dollars into the RBI’s nostro account.

In the reverse leg of the swap transaction, rupee funds will have to be returned to the Reserve Bank along with the swap premium to get the US dollars back.

“In order to meet the durable liquidity needs of the system, the Reserve Bank has decided to augment its liquidity management toolkit and inject rupee liquidity for longer duration through long-term foreign exchange Buy/Sell swap…,” the RBI said.

The US dollar amount mobilised through the auction, to be conducted on April 23, would also reflect in RBI’s foreign exchange reserves for the tenor of the swap while also reflecting in RBI’s forward liabilities.

The RBI statement said the 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.

 

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