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RBI to connect Sell-Buy USD/INR swap

February 22, 2022

RBI to connect Sell-Buy USD/INR swap
India’s central bank will go into sell-buy swaps worth $5 billion with banks to elongate the maturity profile of its forward dollar book. The 2-year USD/INR sell-buy swaps auction will be hung on March 8, the Reserve Bank of India said in a statement on Monday. This will enable access to a wider set of market participants and smoothen receivables relating to forwarding assets, it said.

Under the swap, a bank will purchase U.S. dollars from the RBI and at the same time agree to sell similar measures of dollars toward the end of the swap period. The auction cutoff will be founded on the superior sum in paisa terms up to two decimal points. The RBI had a long forward book of $49.1 billion as of end-December, as per its most recent release. Of that, net $699 million long dollar positions were to mature in over three months to a year.
 
The move will suck out rupee liquidity and possibly make space for open-market bond purchases by the RBI, experts said.
 
The progression also comes ahead of the mega Life Insurance Corp. of India share deal, as would be considered normal to see significant inflows. “The FX move will help suck out INR liquidity and emphatically upholds the RBI’s liquidity normalization policy imperative short term,” said Kanika Pasricha, market analyst at Standard Chartered Plc in Mumbai. “We will watch out for a repeat of such a move. By the way, it would likewise assist with acknowledging FX gains in this way boosting RBI dividend.”

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