RBI announces 2$ bn USD/INR Sell Buy Swaps

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RBI announces 2$ bn USD/INR Sell Buy Swaps

RBI announces 2$ bn

On a review of current financial market conditions and taking into consideration the need folks Dollars within the market, it’s been decided to undertake 6-month US Dollar sell/buy swaps to supply liquidity to the exchange market.

Financial markets worldwide face intense selling pressures on extreme risk aversion thanks 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 became accentuated across the planet.

On a review of current financial market conditions and taking into consideration the need folks Dollars within the market, it’s been decided to undertake 6-month US Dollar sell/buy swaps to supply liquidity to the exchange market. The swaps are going to be conducted through the auction route in multiple tranches. The auctions are going to be multiple prices based, i.e., successful bids are going to be accepted at their respective quoted premiums.

To begin with, an amount of USD 2 billion would be offered on March 16, 2020, RBI said.

Federal Reserve Bank of India

The Federal Reserve Bank of India is closely and continuously monitoring the rapidly evolving global situation and spillovers. It stands able to take all necessary measures to make sure that the consequences of the COVID-19 pandemic on the Indian economy are mitigated, and financial markets and institutions in India still function normally. the extent of forex reserves at USD 487.24 billion as on March 6, 2020, remains comfortable to satisfy any exigency.

  •  Authorized Dealers (ADs) Category 1 banks are going to be the eligible entities to participate within the auction.
  •  The swap is going to be within the nature of an easy sell/buy exchange swap from the Federal Reserve Bankside. A bank shall buy US Dollars from the Federal Reserve Bank and simultaneously comply with sell an equivalent amount folks Dollars at the top of the swap period.
  •  The auction cut-off is going to be supported the premium amount in paisa terms up to 2 decimal points. The market participants are going to be required to put their bids with the premium that they’re willing to receive from the Federal Reserve Bank for the tenor of the swap, expressed in paisa terms up to 2 decimal places. Successful bids will get accepted at their respective quoted premium.
  •  Once the auction window is closed, all the bids are going to be arranged in ascending order of the swap premium quoted and therefore the cut-off is going to be received the premium like the notified US Dollar amount of the auction. Successful bidders are going to be those that have placed their bids below or at the cut-off premium. All bids above the cut-off premium are going to be rejected.
  •  there’ll be a provision of pro-rata allotment should there be quite one successful bid at the cut-off premium.
  •  The minimum bid size is going to be USD 10 million and in multiples of USD 1 million thereafter. The eligible participants also can submit multiple bids. However, the mixture amount of bids submitted by one eligible entity shouldn’t exceed the notified amount of auction.
  •  within the first leg of the transaction, the bank will buy US Dollars from the Federal Reserve Bank at FBIL Reference Rate of the auction date. The settlement of the primary leg of the swap will happen on a spot basis from the date of the transaction and therefore the Federal Reserve Bank will debit the Rupee funds from the present account of the successful bidder and the bidder will receive US Dollars into its Nostro account. within the reverse leg of the swap transaction, US Dollars will need to be returned to the Federal Reserve Bank, to urge the Rupee funds back including the swap premium.
  •  The banks desirous of participating within the proposed auction may furnish/update their settlement details to RBI back office (Ph:022-22611069; E-mail) latest by the preceding day of the auction.
  •  The banks are going to be exempted from the ISDA requirements for the aim of those swaps.
  •  Swaps under the auction, once undertaken with the Federal Reserve Bank, can’t be canceled and no request for any modification or revision to an equivalent are going to be entertained.
  •  The auction window will remain open between 9.30 AM to 11.00 AM on the date of the auction. The results of the auction are going to be announced on an equivalent day.
  •  The eligible participants are required to submit their bids through email only on their letterhead (signed and scanned) within the prescribed form alongside the excel sheet provided therein within the auction window to Financial Markets Operations Department.
  •  RBI reserves the proper to:

Decide on the quantum folks Dollar amount to be sold within the swap auction.

Accept bids for fewer than the mixture notified US Dollar amount.

Accept marginally above the notified US Dollar amount thanks to rounding-off effects.

Accept or reject any or all the bids either wholly or partially without assigning any reason.

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