RBI Announces USD/INR Sell Buy Swaps

RBI on Thursday (12.03.2020) announced that it has been decided to undertake 6-month US Dollar sell/buy swaps to provide liquidity to the foreign exchange market in multiple tranches. The first tranch would be offered on March 16, 2020, for swap amount USD 2 Billion
“On emerging Financial markets worldwide are facing intense selling pressures on extreme risk aversion due to the spread of COVID-19 infections, compounded by the slump in international crude prices and a decline in bond yields in advanced economies. Flight to safety has led to a spike in volatility across all asset classes, with several emerging market currencies experiencing downside pressures. Mismatches in US dollar liquidity have become accentuated across the world” the circular said while giving the reason for RBI’s decision on USD/INR sell-by swaps.
According to the notification, the auction will be in the simple nature of sell/buy foreign exchange swap and AD category 1 banks will be eligible to participate in the auction. In the first leg of the transaction, the bank will buy US Dollars from the Reserve Bank at the FBIL Reference Rate of the auction date. Reserve Bank will debit the Rupee funds from the current account of the successful bidder and the bidder will receive US Dollars into its Nostro account. In the reverse leg of the swap transaction, US Dollars will have to be returned to the Reserve Bank, to get the Rupee funds back including the swap premium. The auction cut-off will be on the premium amount in paisa terms up to two decimals. The minimum bid size is 10 million USD and in multiple of 1 million USD thereafter. Banks will be exempted from the ISDA requirement for the purpose of these swaps. The auction window will be opened between 9.30 AM to 11.00 AM on 16th March 2020. The participant banks may furnish/update their settlement details to RBI back-office latest by 15th March. The eligible participants required to submit their bids only through email on their letterhead (signed and scanned) in the prescribed form along with the excel sheet provided therein within the auction window to Financial Markets Operations Department.