The Reserve Bank of India (RBI) took delivery of $5-billion dollar/rupee swap that matured on Monday, releasing over Rs 40,000 crore of durable liquidity in the system. Sustained dollar flows and tight liquidity have prompted the central bank to take delivery of the swap, say bankers. The move will boost foreign exchange reserves.
“There was no notification from the RBI last week to roll over this swap which was an indication that the RBI will take the delivery on Monday,” V Ramachandra Reddy, head of treasury, Karur Vysya Bank told FE. “The liquidity coming into the banking system will be durable, it will stay in the system for longer period,” he added.
The RBI had conducted a dollar/rupee sell-buy swap auction for a notified amount of $5 billion on March 8, 2022. The central bank had the option to take delivery of the swap, roll it over entirely, or opt for a partial rollover. In a dollar/ rupee sell-buy swap deal, the RBI sells dollars to banks and buys them at a later date.
“Liquidity tightness in the banking system and sustained dollar inflows may have encouraged the RBI to take the delivery of the swaps either partially or fully,” said Kunal Sodhani, vice-president, Shinhan Bank. “After falling in the past week, forward premiums bounced back today,” he added.
The banking system has some relief from liquidity shortage last week, with banks witnessing excess liquidity. However, bankers say that this will be a short-term relief as advance tax and GST-related outflows will again put liquidity under strain. Advance tax outflows on March 15 and the GST outflows around March 20 are expected to take out about Rs 2.5 trillion from the banking system.