The Reserve Bank of India (RBI) has decided to undertake a USD/INR 2-year sell buy swap auction of USD 5 billion on 8th March, amid the upcoming reversal of a buy sell auction RBI had undertaken for a similar amount 3-years back.
RBI said that the USD/INR 2-year sell buy swap auction is being conducted with a view to elongating the maturity profile of its forward book and smoothen the receivables relating to forward assets.
Under a sell/buy swap, a bank buys USD from RBI and simultaneously agrees to sell the same amount of USD at the end of the swap period. Similarly, under a buy sell swap, a bank sells USD to RBI and simultaneously agrees to buy the same amount of USD at the end of the swap period.
The RBI has been intervening heavily in the forwards market over the last two years as it tried to sterilize foreign inflows to prevent the currency from appreciating quickly. To avoid adding to already surplus domestic liquidity, it shifted intervention from the spot market to the forward’s market.
As of December, the latest data available, RBI had a net forward book of USD 49 billion. Of this, USD 47 billion in forwards were maturing between three months to one year. The two-year swap auction will help extend the maturity of a part of this.