The Reserve Bank of India likely conducted the second leg of the $5 billion USD/INR buy/sell swap as the system liquidity remained high, said market participants. There is little need to roll over the swap given the condition of ample liquidity surplus in the banking system, they said.
With the swap, the RBI will drain liquidity around Rs 43,000 crore from the system. However, it is not expected to have a major impact on the system liquidity as it will be still above 1% of the net demand and time liabilities, the level at which RBI is comfortable. The system liquidity was Rs 4.09 lakh crore on August 3, according to latest RBI data.
No full rollover needed amid surplus conditions
“With a massive system liquidity, the requirement was less to roll over the swap. RBI likely gave majority delivery but seems like it rolled over a small portion of it,” said a senior forex dealer from a private sector bank.
The central bank conducted the first leg of the six-month buy/sell operation in January-end to support the system with liquidity, which had a maturity on Monday. In a buy/sell swap, the RBI buys dollars in the first leg of the operation in exchange of rupees and it sells dollars on maturity, thereby sucking out liquidity.
Partial rollover signals calibrated liquidity approach
The RBI conducted two USD/INR buy/sell swap auctions including a three-year $10 billion swap as part of its liquidity injection operations. The central bank’s liquidity tools such as open market operations, variable rate repo auctions, and buy/sell swap together helped the liquidity to turn into surplus.
“Some movement in forwards today suggests that RBI rolled over some portion of the swap. The USD/INR rate did not show a large devolvement impact. It seems like they did part rolling and part devolvement,” said Alok Singh, treasury head, CSB Bank.
“Even after the outflow, the liquidity will be in a sizable surplus. Tomorrow’s surplus numbers will give a better picture of the amount devolved,” he added.