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In order to push banks to bring in more dollars, the Reserve Bank of India (RBI) has relaxed the tenure requirements of banks' foreign currency borrowings that would be swapped with the RBI under a special swap facility. Banks can now swap dollars raised through even one-year forex borrowings overseas with the RBI. Earlier, banks were able to swap funds raised only through three-year-and-above forex loans.
The central bank has received $1.4 billion from banks through its swap facility for forex loans and foreign currency non-resident deposits (FCNR), RBI governor Raghuram Rajan had said in a press meet last week.
Banks can swap dollar funds raised through FCNR deposits at 3.5% swap cost and funds through forex loans at 100 bps lower than the prevailing market swap rate. Early this month, the RBI had announced swap facilities to encourage banks to raise dollars through the two routes and, thereby, help the battered rupee reverse its losses.
The rupee had lost a whopping 27% in just five months and hit an all-time low of 68.85/$ in early August. The currency ended at 62.44/$ on Wednesday.
In a separate release, the RBI assured banks that it would take appropriate measure to infuse liquidity, including bond purchases under open-market operations, if needed.
ďThe Reserve Bank is closely and continuously monitoring liquidity conditions and will take actions as appropriate, including open-market operations, to ensure that adequate liquidity is available to support the flow of credit to productive sectors of the economy,Ē the central bank said.
Bond yields have hardened and the 10-year benchmark 7.16%, 2023 bond yield closed at 8.79%. The yield has risen nearly 30 bps since last week on fears of rate hikes by the RBI and worries that the central bank may not conduct OMO bond purchases.
The RBI noted that the outlook on liquidity is uncertain given the government's market borrowing, banks' half-yearly accounts reconciliation, seasonal pick up in credit offtake and demand for currency.
The RBI has been infusing around R1.5 lakh crore of liquidity on a daily basis through its repo tender at 7.50% and Marginal Standing Facility tender at 9.50%. The