RBI to repeat $5 billion forex swap after successful auction
- While the forex swap will boost India's forex reserves, it may curb bond-buying by the Reserve Bank of India
- The 26 March forex swap helped inject liquidity, in time for the surge in demand as the fiscal year closed on 31 March
Mumbai: The Reserve Bank of India on Monday said it will conduct a $5 billion dollar-rupee swap auction on 23 April following the success of the first round last month.
The central bank had then received a total of 240 bids worth $16.31 billion, about three times the notified amount.
Through the auction, RBI bought dollars totaling $5.02 billion at a premium of ₹7.76, which works out to an annualized rate of 3.76% from authorized dealers and paid them rupees in return.
The swap comes ahead of the monetary policy on Thursday. With the government borrowing for fiscal year 2020 being front-loaded, experts believe the swap auction will ensure that system liquidity is maintained.
Soumya Kanti Ghosh, chief economist, State Bank of India believes that while the auction has led to faster accretion to reserves, it could have an impact on yields.
“The market has got an indication that open market operations (OMOs) are not coming. Banks don’t have enough securities for OMO transactions and that could be the reason why RBI announced the swap. I expect RBI to come out with some announcement in the policy on releasing securities of banks to market that could be used by banks to do OMO,” he added.
With this auction, RBI’s forex reserves will rise to $412 billion by the end of 23 April.
The move to buy dollars and offer banks rupees in return helped inject liquidity into Asia’s third-largest economy in time for the surge in demand as the financial year closed on 31 March.
The auction will be held between 9.30am to 11am local time, according to RBI’s statement on Monday.
While the swap will bulk up India’s foreign-exchange reserves, there’s concern that using the forex swap may reduce the need for the RBI to buy debt from the market.
The central bank had last bought government bonds from the market on 14 March.
gopika.g@livemint.com
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First Published:2 Apr 2019, 07:00 AM IST
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