Days after the successful auction, RBI would conduct another round of dollar-rupee buy-sell swap to pump more liquidity into the banking system.
Days after the successful auction, RBI would conduct another round of dollar-rupee buy-sell swap to pump more liquidity into the banking system. A long-term liquidity infusion for a tenure of three years would be done on April 23, RBI said on Monday. The nation goes to vote on April 11.
The RBI, on March 26, had bought $5 billion through similar swap auctio in a bid to ease liquidity in the system. The USD/INR Buy/Sell swap auction will be held on April 23, 2019, it informed.
“The Rupee Dollar Swap arrangement is a good one due to several factors: It reduces the obligation on the RBI to manage the currency when it is appreciating and the appreciation is becoming excessive. As such banks buy and give the USD to RBI which protects excessive appreciation when foreign inflows are strong,” veteran investor Sandip Sabharwal told Financial Express Online.
RBI’s latest move would release rupee-liquidity since the system has been in continuous shortage of liquidity for long on account of high real rates, the move would release rupee-liquidity, he added.
“The flip side is that it puts obligations on the RBI at a future date which would not be the case under normal OMO’s,” he noted.
The latest move by the central bank would ensure better transmission of policy rates by the banks, Abhimanyu Sofat, Head of Research, IIFL Securities told Financial Express Online. Even the fall in forex reserve would stall as a result, he added.
“The second rupee-dollar swap agreement would infuse durable liquidity into the system. Considering the appetite at the previous swap auction, the central bank has taken this liquidity boosting step,” he said.
Under the swap-facility, a bank sells US dollars to the central bank and simultaneously agrees to purchase the same amount of greenback at the end of the period.