Home Uncategorized RBI offers dollar-Re sell/buy swaps to ensure liquidity in forex market

RBI offers dollar-Re sell/buy swaps to ensure liquidity in forex market

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MUMBAI: Even as rupee has been constantly falling and fears of liquidity tightening mounting in the forex market, Reserve Bank of India (RBI) has come with the announcement to undertake a 6-month US dollar sell/buy swap to address the situation.

The RBI said, to begin with, an amount of $2 billion would be offered on March 16, 2020. RBI explained that the swaps will be conducted through the auction route in multiple tranches. The auctions will be multiple price based, i.e., successful bids will be accepted at their respective quoted premiums.

The rupee had Wednesday crashed to 74.34 against the US dollar, adding fears that the rupee may fall below its all-time low of 74.48 hit in October 2018.

“Financial markets worldwide are facing intense selling pressures on extreme risk aversion due to the spread of coronavirus infections, compounded by the slump in international crude prices and a decline in bond yields in advanced economies. Flight to safety has led to spike in volatility across all asset classes, with several emerging market currencies experiencing downside pressures. Mismatches in US dollar liquidity have become accentuated across the world,” RBI said in a statement.

“On a review of current financial market conditions and taking into consideration the requirement of US dollars in the market, it has been decided to undertake 6-month US dollar sell/buy swaps to provide liquidity to the foreign exchange market,” RBI added.

The RBI also said it is closely and continuously monitoring the rapidly evolving global situation and spillovers. “It stands ready to take all necessary measures to ensure that the effects of the coronavirus pandemic on the Indian economy are mitigated and financial markets and institutions in India continue to function normally. The level of forex reserves at $487.24 billion as on March 6, 2020 remains comfortable to meet any exigency,” it added.

 

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