RBI conducts $5 billion dollar-rupee swap - Times of India

RBI conducts $5 billion dollar-rupee swap – Times of India


MUMBAI: Reserve Bank of India on Tuesday accepted bids from banks for $5135 million in a dollar-rupee sell-buy swap auction. The auction announced earlier will support the rupee by supplying dollars and withdrawing an equivalent amount of rupee liquidity from the markets.
On Tuesday the rupee opened weak and touched a low of 77.05 before firming up to close at 76.92 as against Monday’s close of 76.97.
The RBI said that it received 246 bids of which it accepted 86 at a weighted average p[remium of 649 paise. The premium represents the amount RBI will earn from this transaction. A collateral benefit is that this increases the headroom to pay a dividend to the government.
Dealers said that the transaction would provide stability to the rupee which is facing a lot of volatility on account of rising crude and commodity prices.
“The dollars will be settled on March 10th and we may expect some cooling down of the currency. This move was largely interpreted as one which is to draw out liquidity and hence also help deliver higher dividend for the government. However, this comes at a time when the rupee is volatile and needs to be corrected,” said Madan Sabnavis, chief economist, Bank of Baroda.
“Interestingly on March 28th there would also be the reversing of a buy-sell swap held in 2019 where the RBI provided liquidity to banks by buying dollars. This would be reversed where the banks will have to buy back the dollars. Hence there will additional supply in the market for forex,” said Sabnavis.
Adding to the pressure on the rupee, was the relentless selling by foreign institutional investors. According to stock exchange data foreign investors sold shares worth Rs 8,142 crore on Tuesday.


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