Selling bills outright and mopping out cash will squeeze the rupee reserves in the banking available for credit, resulting in a build up foreign reserves and 'surplus of dollars' in forex markets.
Such a 'sterilized foreign exchange purchase' allows the exchange rate to strengthen.
Separately a repo auction was also called to mop up cash overnight.
The spot US dollars was quoted around 131.20/40 to the US dollar Monday.
There was some uncertainty in forex markets after market participants realized that nearly 500 million US dollars expected from the sale of a sovereign bond had by passed forex markets and had been exchanged for rupee liquidity from the monetary authority..