Skip to main content

Currency swap auction success gives RBI an alternative liquidity tap

By
The Reserve Bank of India (RBI) on Tuesday infused Rs. 34,561 crore into the banking system in exchange for dollars, in its first dollar-rupee swap auction. In a statement, the central bank said the auction received bids for dollar 16.31 billion, approximately three times the notified amount. Through the auction, RBI bought dollars totalling dollar 5.02 billion at a premium of Rs. 7.76, which works out to an annualized rate of 3.76% from authorized dealers and paid them rupees in return. After three years, these banks will buy back the same amount of dollars at the premium offered in Tuesday’s auction.
The enthusiastic response to the auction could prompt the Indian central bank to take this route as an alternative to open market operations (OMOs), which are frequently used to manage liquidity, experts said. “It is a very well-offered auction and it only shows confidence within the central bank and the market participants that this instrument can be used as an alternative to OMOs,” said Ashish Vaidya, head of trading at DBS Bank in Mumbai. Vaidya added that the dollar swap is a good instrument as it balances out the onshore money market and the forexdriven money market rates that get skewed due to interventions by the central bank.
Saugata Bhattacharya, chief economist at Axis
Bank Ltd, agreed that the central bank could look at more such swaps in the future. “The current auction supplied Rs. 345.6 billion in fresh rupee liquidity, and our expectations of more forex swap auctions (may be another five auctions in the year ahead) will supply more than half the amount of liquidity likely to drain from currency in circulation,” he said. “It’s not necessarily banks’ balance sheet, but it could be the balance sheet of corporates, which could have decided the pricing of the issue. Corporates sitting on dollar funds raised through external commercial borrowings could have used this route through banks to hedge their risk,” said Kama Mahajan, head of treasury and global markets at Bank of Baroda. Swaps are part of the liquidity management framework and have been used regularly. They are also part of special programmes to sterilize the liquidity effects of forex intervention.
Bhattacharya said the immediate effect of the swap proposal was lower hedging costs.
The rupee closed at 68.86 on Tuesday, up 0.11% from Monday’s closing.
The Mint, 27th March 2019

Comments

Post a Comment

Popular posts from this blog

Data storage norm splits digital payments industry

By
Data storage norm splits digital payments industry  India’s nascent digital payment industry could be thrown into disarray due to the demand by the Reserve Bank of India (RBI) that all user data be stored within the country, fears an industry grouping, which has termed the decision as “heavy-handed”, even as others, including the country’s largest digital payment provider Paytm, have hailed the move.  In a bid to narrow the growing schism, the industry is planning to send a formal representation to the regulator highlighting its concerns, a top official told ET.  “We are trying to build a consensus on the issue," said the person adding that the representation to the central bank will be ready this week.  RBI on April 6, mandated all payment companies—global and local—to set up data storage facilities within India by October. The stringent six-month deadline has attracted the ire of several sections of the industry that fear it will lead to a disruption of wel...
18 comments
Read more

Offer’s for all of you

By
Great Bumper Dhamaka Offer’s for all of you... It's Time to see your Business Online, WebeCreator Offer Website Designing with domain & Email @ nominal charges. For a year For More information visit us http://goo.gl/KlpppF call on 9890151261/9773197533  drop a mail to sales@webecreator.com
Post a Comment
Read more

Sebi to finalise options in commodities today

By
The Commodity Derivatives Advisory Committee of the Securities and Exchange Board of India ( Sebi) will meet on Friday with senior officials of the latter, to give a final shape to the rules on options trading in commodity futures, beside revising the warehousing norms to ensure good delivery on settlement. The decision taken, after discussing with the advisory committee, will be placed before the regulator’s board, to finalise the regulations. According to knowledgeable sources, three commodities in each segment, agricultural and non- agricultural, have been proposed for introducing options. It appears commodities from the soya and guar segments are preferred in the former. From the non- agri segment, it is likely that gold, silver and crude oil will be finalised. All these These have better liquidity and both the National Commodity and Derivatives Exchange and the Multi Commodity Exchange, respectively, will be able to introduce the options. In the equity segments, options ar...
17 comments
Read more