Informist New Delhi

The Reserve Bank of India will conduct a $10-billion dollar/rupee buy/sell swap auction on Feb. 28, wherein it will buy dollars for immediate delivery and sell them for delivery after three years, in order to meet the durable liquidity needs of the system, the central bank said in a press release Friday. This is the biggest quantum for a dollar/rupee swap auction by the RBI on record.

The swap will reverse on Mar. 6, 2028, the RBI said. Banking system liquidity has been in deficit since mid-December, with market participants attributing the tightness to the RBI's spot dollar sales in order to soften the rupee's depreciation. The RBI has been conducting dollar/rupee buy/sell swaps since December in the currency forwards market intermittently to offset the impact of its dollar sales in the spot market and avert pushing out rupee liquidity.

The net liquidity injected by the RBI--a proxy for systemic liquidity deficit--has averaged nearly INR 1.53 trillion this month. Market participants will place their bids in terms of the premium they are willing to pay to the RBI, in paisa terms up to two decimal places, the release said. The auction will be multiple-price based and will take place between 1030 IST and 1130 IST. The result of the auction will be announced on the same day.