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Response to $5 billion swap auction quite well: Shakthikanta Das
Mar-20-2019

Reserve Bank of India (RBI) governor Shakthikanta Das has stated the recent decision to inject rupee liquidity through long-term foreign exchange swap has received quite well response from market. In an unprecedented move, the Central Bank on March 13 announced a US dollar/rupee buy/sell swap auction worth $5 billion on March 26 to inject rupee liquidity for longer duration. This is first time that such a tool has been deployed by the RBI, which has been normally using OMOs to inject liquidity into the system. But the targeted liquidity will reach the system only next fiscal year when the government starts spending.

Under the buy/sell forex swap, a bank will sell dollars to the RBI and simultaneously agree to buy the same amount of dollars at the end of the swap period, which in this case is three years, and the additional liquidity flowing into the system can support credit growth and soften bond yields. The auction will begin on March 26, 2049 and will run up to March 28, 2022, which means the instrument has a three-year tenor with no liability on the RBI unlike in the 2013 when the then governor Raghuram Rajan allowed banks to mop up $ 30 billion through NRI deposits offering them to cover their hedging risks.

However, Das parried a query whether the scheme will be repeated if the maiden attempt is successful. The central bank statement on March 13 also said the dollar amount mobilised through the auction will reflect in the forex reserves for the tenor of the swap, and also reflect in RBI's forward dollar liabilities. This means that the forex kitty, which is $402 billion now, will swell by $5 billion and similar will be the jump in the central bank's forward sell position.

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