RBI buys $5 billion in forex swap auctionhttps://indianexpress.com/article/business/rbi-buys-5-billion-in-forex-swap-auction-5644533/

RBI buys $5 billion in forex swap auction

The central bank bought the targeted $5 billion as part of the long term dollar/ rupee swap auction with a three-year tenor, the RBI said in a statement. In turn, the RBI infused Rs 34,561 crore into the banking system.

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The RBI received .31 billion in bids for the auction and accepted 89 offers. The cut-off for the auction was set at 776 paise which was roughly 35 paise below the prevailing forward rate in the market.

The Reserve Bank of India on Tuesday successfully executed a $5 billion forex swap auction in order to facilitate faster transmission of interest rates and improve liquidity in the banking system.

The central bank bought the targeted $5 billion as part of the long term dollar/ rupee swap auction with a three-year tenor, the RBI said in a statement. In turn, the RBI infused Rs 34,561 crore into the banking system.

The RBI received $16.31 billion in bids for the auction and accepted 89 offers. The cut-off for the auction was set at 776 paise which was roughly 35 paise below the prevailing forward rate in the market.

The amount of dollars get mopped up via these operations will reflect in the RBI’s foreign exchange reserves for the tenor of the swap while also reflecting in the RBI’s forward liabilities.

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Meanwhile, the system gets rupee equivalent liquidity for the same amount and for the same duration, improving the liquidity.

“From a more medium term perspective, this may also imply that the RBI is stepping up efforts for transmission … “ said Suyash Choudhary, head – fixed income, IDFC AMC.

While the primary objective of using auction based foreign exchange swap is to infuse the rupee liquidity through an alternate channel, there could be other collateral benefits at the same time. The decline in forward premia (especially at the longer tenor) will lower dollar hedging cost for importers. “This also juxtaposes well with the recent relaxation in ECB limits, especially for state owned oil companies, which have unhedged dollar exposures, and can now consider prudential hedging operations,” said Shubhada Rao, Chief Economist, YES Bank.

Meanwhile, the rupee appreciated by 10 paise to end at 68.86 against the US dollar following a robust response to the RBI’s rupee-dollar swap auction. The rupee opened strong at 68.88 against the greenback but surrendered the gains to slip to a low of 68.98. However, it clawed back lost ground and finally ended at 68.86, up 10 paise against its previous close of 68.96 per dollar. “The success of India’s $ 5 billion swap auction will decide whether it will become a popular instrument in the central bank’s liquidity tool box,” said V K Sharma, head PCG and Capital Markets Strategy, HDFC Securities.