The Reserve Bank of India, RBI yesterday said it will inject long-term liquidity worth 5 billion US Dollars into the banking system through a dollar-rupee buy-sell swap for a tenure of three years on April 23. The RBI statement stated that the move intends to meet the durable liquidity needs of the system.
It stated that the auction is meant to give RBI greater flexibility in managing banking system cash while helping absorb any potential large dollar inflows, which could make the rupee rise sharply. The swap will be in the nature of a simple buy/sell foreign exchange swap from the Reserve Bankside. Under the swap, a bank would sell US dollars to the RBI and simultaneously agree to buy the same amount of US dollars at the end of the swap period.
The auction would be a multiple-price based auction — successful bids will get accepted at their respective quoted premium. The minimum size of each bid should be USD 10 million and in multiples of USD 1 million thereafter. It is the second such auction within a month. Earlier, on March 26, the central bank had bought USD 5 billion through similar swap auction in a bid to ease liquidity ahead of elections.