RBI to enter into sell-buy swaps worth $5 billion in March - Times of India

RBI to enter into sell-buy swaps worth $5 billion in March – Times of India


MUMBAI: The Reserve Bank of India (RBI) on Monday said it would sell US dollars worth $5 billion to banks and after two years buy back the same from them. Called a sell-buy swap in market parlance, this will leave $5 billion extra with banks just when the LIC IPO is expected to open for subscription.
It is widely expected that a large number of foreign funds will participate in the LIC issue, set to be the largest public offering in India’s history. The sell-buy swap will be on March 8, the RBI said in a release.
“This will enable access to a wider set of market participants. The auction will be multiple-price-based, that is, successful bids will be accepted at their respective quoted premiums,” the release said.
The RBI had a long forward book of $49.1 billion as of end-December, according to its latest bulletin. Of that, net $699 million long-dollar positions were to mature in up to one month, $1.2 billion in more than one to three months, while $47.2 billion were to mature in more than three months to a year, a Bloomberg report said.
As the RBI sells dollars and takes in rupees, this will suck out a large amount of liquidity within the banking system. In turn, this will also help in RBI’s liquidity management actions. On the other hand, banks, flush with dollars, will probably see the rupee strengthening against the greenback, market players said.


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