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RBI accepts $5 bn from banks at currency swap auction to ease liquidity

RBI has bought 3 trillion rupees of debt this financial year

Subhadip Sircar & Kartik Goyal | Bloomberg 

RBI
A Reserve Bank of India (RBI) logo is seen at the gate of its office in New Delhi. Photo: Reuters

India’s central bank accepted the $5 billion it targeted from at its to ease liquidity ahead of the financial year-end this month. The authority said it received 240 bids worth $16.31 billion. The cutoff was set at a premium of 776 paise, according to a statement.

“The amount received has been very decent and that shows it has been a successful move,” said Paresh Nayar, head of currency and money markets at FirstRand Ltd. in Mumbai. “This also leads to belief that the RBI might be prompted to come out with more of such liquidity injections in future.”

ALSO READ: $5 bn swap smartest move of RBI gov

In an unusual move, the earlier this month said it would buy dollars from for three years and offer them rupees in return. The swap will bulk up India’s foreign-exchange reserves while injecting as much as Rs 345.6 billion into the financial system to ease a cash crunch typically seen before the financial year-end.


ALSO READ: A swap in time

The announcement also led to concerns among traders that the central bank may scale down its purchases of bonds that have been a key support for the market at a time when concerns about the government’s record $100 billion borrowing plan have cooled demand for debt. The RBI has bought 3 trillion rupees of debt this financial year.

ALSO READ: Success of India's $5-bn swap auction might spur an encore, suggest experts

The premium is not too far from market levels and the cutoff isn’t disruptive, said Nayar. “It gives a signal that forward premium will not shoot up in the inter-bank market.”

The annualized 1-year dollar/rupee forward premia dropped one-basis point after the cutoff announcement to 3.64 per cent, according to Bloomberg data.


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First Published: Tue, March 26 2019. 19:38 IST
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