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The Reserve Bank of India (RBI) on Wednesday announced a USD 5 billion dollar-rupee swap auction aimed at injecting long-term liquidity into the banking system amid pressure on the rupee and foreign investor outflows. In simple terms, the move will allow banks to give US dollars to the RBI in exchange for rupees for a fixed period, helping improve the availability of funds in the banking system. The RBI said it will conduct a USD/INR Buy/Sell swap auction of USD 5 billion for a tenor of three years on May 26.
The central bank added that the move has been taken "to meet the durable liquidity needs of the system." Under the arrangement, banks will sell US dollars to the RBI and receive rupees in return. After three years, the RBI will return the dollars to banks and take back the rupees. The RBI has been taking several measures in recent months to maintain adequate liquidity in the banking system. The move comes at a time when the Indian rupee has faced pressure due to global uncertainty and foreign investor outflows from Indian equity markets. Foreign investors have pulled out billions of dollars from Indian markets amid global uncertainty and pressure on emerging market currencies. The central bank said the auction will be conducted through a multiple-price auction method, where banks can place bids during a one-hour window. (ANI)
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