The banking sector and rupee are in focus as the Reserve Bank of India (RBI) announces plans of fresh liquidity boost on March 24. The Reserve Bank said it will conduct a USD/INR Buy/Sell swap auction of $10 billion later this month to inject liquidity into the banking system. The swap auction for a tenor of thirty-six months will be conducted on March 24, the RBI stated in a press release.
The swap, it added, will be in the nature of a simple buy/sell foreign exchange swap from the Reserve Bank. A bank shall 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 market participants would be required to place their bids in terms of the premium that they are willing to pay to the Reserve Bank for the tenor of the swap, expressed in paisa terms up to two decimal places. The auction cut-off would be based on the premium. The auction would be a multiple-price based auction, i.e., successful bids will get accepted at their respective quoted premium,” the central bank said in a statement.
Once the auction window is closed, RBI said, all the bids would be arranged in descending order of the swap premium quoted and the cut-off premium would be arrived at the premium corresponding to the notified US dollar amount of the auction. “Successful bidders would be those who have placed their bids at or above the cut-off premium. All bids lower than the cut-off premium would be rejected,” it added.
The minimum bid size would be $10 million and in multiples of $1 million thereafter, the central bank informed while maintaining that the eligible participants are allowed to submit multiple bids.
Meanwhile, the rupee depreciated by 45 paise to close at 87.33 on Monday. This is the steepest single-day decline since February 25, pressured by dollar bids spurred by the maturity of positions in non-deliverable forwards (NDF) and a fall in the Chinese yuan.