RBI to Inject Liquidity: 3 Year USD/INR Swap Auction Announced!:

RBI to Inject Liquidity: 3 Year USD/INR Swap Auction Announced! To ensure sufficient long-term liquidity in the system, the Reserve Bank of India (RBI) has decided to inject Rupee liquidity through a USD/INR Buy/Sell swap for a longer duration. As part of this move, the RBI will conduct a USD/INR swap auction worth $10 billion with a tenure of three years. The Reserve Bank of India (RBI) will conduct a USD/INR Buy/Sell swap auction for $10 billion on February 28, 2025, between 10:30 AM and 11:30 AM. The near-leg (spot settlement) date is set for March 4, 2025, while the far-leg date will be March 6, 2028. The Market participants need to submit their bids by specifying the premium they are ready to pay to the Reserve Bank for the swap tenure. This premium must be quoted in paisa terms, up to two decimal places. The final cut-off for the auction will be determined based on these premium bids. The auction will follow a multiple-price-based auction, meaning that successful bids will be accepted at the respective premiums quoted by participants.

Here are the Operational Rules and Eligibilty Criteria and Further Details:

The RBI is conducting a simple buy/sell foreign exchange swap. In this process, banks will sell US Dollars to the RBI now and agree to buy back the same amount of US Dollars at the end of the swap period. After the auction ends, all bids will be sorted from highest to lowest based on the swap premium quoted. The cut-off premium will be set at the level where the total US Dollar amount reaches the auction limit. Bidders who quoted at or above this cut-off premium will win the auction, while those who quoted below it will be rejected. Only Category-I banks, known as Authorised Dealers (ADs), can take part in the auction. In the first step of the transaction, banks will sell US Dollars to the RBI at the FBIL Reference Rate on the auction date. The settlement will happen on a spot basis, meaning the RBI will immediately credit the equivalent Rupee amount to the bank’s current account. In return, the bank must transfer the US Dollars to RBI’s nostro account. In the second step (reverse leg), the bank will need to return the Rupee funds to the RBI, along with an additional swap premium, to get back the US Dollars. Banks that want to take part in the upcoming auction must provide their settlement details to the RBI back office by the day before the auction. For these swaps, banks do not need to meet ISDA requirements. The auction results will be announced on the same day.