Another $5 billion dollar-rupee swap auction on April 23
This would be the second such auction within a month.
Mumbai: The Reserve Bank of India (RBI) on Monday said it would conduct another round of dollar-rupee buy-sell swap of $5 billion for a tenure of three years on April 23. This would be the second such auction within a month.
“In order to meet the durable liquidity needs of the system, the Reserve Bank has decided to inject rupee liquidity for longer duration through long-term foreign exchange buy/sell swap in terms of its extant liquidity management framework… Accordingly, it has been decided to conduct a USD/INR buy/sell swap auction of USD 5 billion for tenor of 3 years on April 23,” the RBI said in a statement.
Under this, the RBI will buy up to $ 5 billion from the market via auction on April 23 and simultaneously sell it back to the same counterparties effective April 25, 2022. The new tool to infuse rupee liquidity will be helpful in partially alleviating year-end-induced liquidity tightness in the banking system while preventing the rupee from rising sharply.
While liquidity deficit is fairly comfortable as of now, economists foresee significant tightness in the coming weeks on account of general elections (scheduled between April 11 and May 19), transfer payment from the central government (via PM-Kisan scheme) along with few state governments (various schemes) that could also potentially increase the demand for currency in the coming quarters.
The currency in circulation (CIC) continues to increase at a robust pace as per RBI data. The CIC to the GDP ratio touched 10.9 per cent in Q3 FY19 and is on course to touch around 11.2 per cent by the end of Q4 FY19. This would be similar to the pre-demonetisation trend of 11-12 per cent.
The first $5 billion forex swap auction a week ago had elicited a strong response from banks with bids being more than three times of the auction amount. Under the rupee dollar swap auction, the RBI received 240 bids worth $16.31 billion against the notified amount of $5 billion. The central bank bought the entire $5 billion it targeted from banks at the auction. In turn, Rs 34,561 crore was infused into the banking system, easing the liquidity crunch.