The Reserve Bank of India on Wednesday said it will conduct a US dollar /Indian rupee buy/sell swap auction of $5 billion for tenor of 3 years on March 26 to inject rupee liquidity for longer duration.

“In order to meet the durable liquidity needs of the system, the Reserve Bank has decided to augment its liquidity management toolkit and inject rupee liquidity for longer duration through long-term foreign exchange Buy/Sell swap in terms of its extant Liquidity Management Framework,” the central bank said in a statement.

Under the buy/sell foreign exchange swap, a bank will sell US dollars to the RBI and simultaneously agree to buy the same amount of US dollars at the end of the swap period.

The liquidity generated due to the buy/sell USD/INR swap auction could support credit growth and soften bond yields.

US Dollar amount mobilized through the auction would reflect in RBI’s foreign exchange reserves for the tenor of the swap while also reflecting in RBI’s forward liabilities, the RBI said in a statement.

According to RBI, the market participants would be required to place their bids in terms of the premium that they are willing to pay to the Reserve Bank for the tenor of the swap, expressed in paisa terms up to two decimal places.

The auction cut-off would be based on the premium. The auction would be a multiple-price based auction -- successful bids will get accepted at their respective quoted premium.