Money & Banking

RBI to conduct sell/buy swap for $2 b to halt rupee’s fall, provide dollar liquidity

Our Bureau Mumbai | Updated on March 12, 2020

RBI eyeing liquidity-boosting steps to soothe markets. File Photo   -  Reuters

With the rupee weakening beyond 74 to the dollar level, the Reserve Bank of India (RBI), on Thursday, stepped in to arrest further depreciation of the domestic unit, announcing that it will undertake six-month dollar sell/buy swap to provide liquidity to the foreign exchange market. To begin with, it will offer $2 billion on March 16.

Simultaneously, the RBI said it is closely and continuously monitoring the rapidly-evolving global situation and spillovers arising from the COVID-19 pandemic.

The sell/buy swap, whereby a bank will buy US dollars from the RBI and simultaneously agree to sell the same amount of dollars at the end of the swap period, will be conducted through the auction route in multiple tranches, the RBI said in a statement.

The auctions will be multiple price-based – successful bids will be accepted at their respective quoted premiums. The swap comes in the backdrop of mismatches in US dollar liquidity becoming accentuated across the world. The sell/buy swap to boost dollar liquidity should be seen in the context of the rupee opening 62 paise weaker on Thursday at 74.25/26 to the dollar (against the previous close of 73.63/64) and closing at 74.2150/2250. Intra-day the rupee tested a high and a low of 74.35 and 74.08, respectively.

The RBI said it stands ready to take all necessary measures to ensure that the effects of the COVID-19 pandemic on the Indian economy are mitigated and financial markets and institutions in India continue to function normally.

Forex reserves

The RBI emphasised that the level of forex reserves at $487.24 billion, as on March 6, remains comfortable to meet any exigency.

The RBI observed that financial markets worldwide are facing intense selling pressures on extreme risk aversion due to the spread of COVID-19 infection, compounded by the slump in international crude prices and decline in bond yields in advanced economies.

The flight to safety has led to a spike in volatility across all asset classes, with several emerging market currencies experiencing downside pressures, it added. Almost a year back, the RBI had conducted buy/sell swap via an auction to inject durable rupee liquidity of three years. The swap amount was $5 billion and banks had sold dollars to the RBI and simultaneously agreed to buy the same amount of dollars at the end of the swap period.



Published on March 12, 2020

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