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After a week-long deliberation with select bankers, the Reserve Bank of India (RBI) on Wednesday evening introduced a $5-billion swap facility for the banks to facilitate permanent liquidity support.
The three-year swap will take place through an auction on March 26. The purpose is to introduce one more liquidity management tool apart from the tried and tested open market operations (OMO), under which the central bank buys and sells bonds from the secondary market.
In the auction, the RBI will accept the spot dollars for a small fee (forwards premium), and will commit to provide the dollars three years down the line.
