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

Govt’s gamble on GST cuts: What do the bond and currency markets signal?

By
  It’s not just humans who suffer from cognitive biases; markets do too. Interestingly, different financial markets exhibit distinct biases, each interpreting events through its own prism of prejudice. Take the recent announcements on GST reforms: equity markets have chosen to view them through the lens of growth, while bond and currency markets are focusing on potential macroeconomic risks—fiscal pressures and current account challenges. So, which lens captures the true pulse?Equity markets may be right in expecting GST reforms to revive consumption, which has remained lacklustre for a while. But the key question remains—will this revival come at the cost of broader macro stability?It is well known that consumption stocks have rallied since the GST rationalisation announcement. But what about bond markets? What signals are they sending since this rejig was announced from the ramparts of the Red Fort?The signs aren't encouraging. Bond prices have slumped and yields have surged sinc...
Post a Comment
Read more

Luxury carmakers urge clarity on GST rates to boost festive season sales

By
  A clear picture regarding new GST rates at the earliest will help the overall auto industry, including the luxury car segment, to regain momentum in the ongoing quarter, which generally sees enhanced sales on account of the festive season.The high-powered GST Council, chaired by Finance Minister Nirmala Sitharaman, will meet on September 3-4 to discuss moving to a two-slab taxation.In an interaction with PTI, BMW Group India President and CEO Hardeep Singh Brar said the recent speculation about the change in GST rates has caused uncertainty in the minds of consumers.Consumer interest and demand is strong, but they (prospective buyers) have adopted a wait-and-watch approach, and this delayed decision-making is impacting new vehicle sales at a certain level, he noted."Expediting clarity on GST rates is essential to get back to speed and ensure the auto sector's contribution to economic growth during this quarter is robust," Brar stated.He also hoped that the sustainable p...
Post a Comment
Read more

Sebi proposes tighter norms for green bond third-party reviewers

By
  Sebi on Friday said it has proposed to tighten the norms to appoint independent third-party reviewers or certifiers for green debt securities to align them with requirements for other ESG-linked bonds.In a draft circular, Sebi said that the current norms for green bonds, introduced in February 2023, lack detailed requirements around reviewer independence, conflict of interest mitigation, and disclosure standards that are now in place for other ESG-linked securities under a June 2025 circular.The regulator's latest proposal seeks public comments on a revised framework that would bring parity by incorporating comprehensive criteria for third-party certifiers of green bonds on non-convertible securities.Under the proposed norms, issuers of green debt securities will need to appoint reviewers who are independent of their management, directors, and key managerial personnel. These reviewers will be remunerated in a way that prevents any conflicts of interest and possess relevant expert...
Post a Comment
Read more