The Reserve Bank of India has announced that it will conduct a $5 billion buy/sell/swap auction to inject liquidity into the financial system on May 26.
The auction is slated to take place from 10:30 a.m. to 11:30 a.m. and will have a tenor of three years, according to the central bank's official release.
RBI uses the swap mechanism to inject rupee liquidity into the banking system while simultaneously managing foreign exchange reserves.
According to the release, the swap is in the nature of a "simple buy/sell foreign exchange swap" from the Reserve Bank side, wherein a bank shall sell US dollars to the Reserve Bank and simultaneously agree to buy the same amount of US dollars at the end of the swap period.
The cut off will be determined on the basis of the premium amount in paisa terms up to two decimal points, meaning that the market participants would be required to place their bids with 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. Following this, successful bids will get accepted at their respective quoted premium.
(This is a developing story)
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