Indian rupee very-near swap costs stay high; bankers wary of December repeat

By Nimesh Vora

MUMBAI, March 27 (Reuters) - The cost of swapping U.S. dollars for Indian rupees remained high as the financial year's final working day approaches, with bankers wary of a potential recurrence of the surge witnessed in December.

The swap points for the exchange covering March 28 to April 2 -- the current financial year's last day to the first day of the next fiscal year -- was last quoted at 11.75/12.00 paisa, according to bankers.

India's money markets are closed on March 31 and April 1.

The 12-paisa swap rate translates to an annualised cost of 14.5%, which is considerably higher than the projected cost of borrowing in the domestic call money market.

Back on the last day of December, this swap rate had hit a high of 90% amid a rush by banks to convert dollars to rupees.

"The memory of the December episode is making banks extra wary. The banks will want to convert their dollars today and not wait till tomorrow," leading to the high swap rate, a senior treasury official at a bank said, asking not to be identified as he is not authorised to speak to the media.

Although it's common for the swap rate to rise on the fiscal year's last day, this time the rate is notably higher than in prior years.

The swap cost peaked at 2.5 paisa on the last trading day of fiscal 2024 and at 5.4 paisa the year before.

Usually, the need for rupee liquidity keeps swap points high on the last day of the fiscal, an FX swap trader at a bank said.

"This time around it's not about rupee liquidity. It's about dollars," he said, noting that banks holding dollars beyond a permissible limit on the last day would invite a capital charge. (Reporting by Nimesh Vora; Editing by Savio D'Souza)