RBI announces dollar-rupee sell-buy swaps as coronavirus spreads

The Reserve Bank of India (RBI) on Thursday decided to undertake six-month US dollar sell/buy swaps to provide liquidity to the foreign exchange market.

The central bank said that financial markets worldwide are facing intense selling pressures on extreme risk aversion due to the spread of COVID-19 infections, compounded by the slump in international crude prices and a decline in bond yields in advanced economies.

"Flight to safety has led to a spike in volatility across all asset classes with several emerging market currencies experiencing downside pressures. Mismatches in US dollar liquidity have become accentuated across the world," it said.

"On a review of current financial market conditions and taking into consideration the requirement of US dollars in the market, it has been decided to undertake six-month US dollar sell/buy swaps to provide liquidity to the foreign exchange market," the RBI said in a statement.

The swaps will be conducted through the auction route in multiple tranches. The auctions will be multiple-price based, that is, successful bids will be accepted at their respective quoted premiums.

To begin with, an amount of two billion US dollars will be offered on March 16. The RBI said it is closely and continuously monitoring the rapidly evolving global situation and spillovers.

"It stands ready to take all necessary measures to ensure that the effects of COVID-19 pandemic on the Indian economy are mitigated and financial markets and institutions in India continue to function normally," it said.

The level of forex reserves at 487.24 billion dollars as on March 6 remains comfortable to meet any exigency, said the RBI.

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