RBI accepts bids worth $5.135 billion in rupee-dollar swap

In a move aimed at soaking up liquidity from the system, the Reserve Bank of India (RBI) on Tuesday accepted bids worth $5.135 billion in a dollar-rupee swap. The auction saw overwhelming response with bids of $13.565 billion coming in against $5 billion on offer.  The cut-off premium of 656 paise, and the weighted average premium of the accepted bids of 649.71 paise translate into an annual premium of a little over 4%.

The excess liquidity in the system is running at close to Rs 8 lakh crore and the central bank had been looking to mop up some of this ahead of the Initial Public Offering (IPO) of Life Insurance Corporation (LIC).

Market watchers observed that the swap gave companies an opportunity to purchase dollars at at affordable cost to be able to service their foreign currency loans. They can also repatriate the dollars for any overseas projects.  Madan Sabnavis, chief economist, Bank of Baroda, pointed out that the dollar-rupee swap transaction comes at a time when the rupee is volatile and some stability is needed. The rupee has weakened by about 3% over the past month or so — thanks to the surge in crude oil prices following the Russia-Ukraine crisis.

The central bank accepted 86 of the 246 bids that came in. The swap auction comes against the backdrop of three USD/INR buy/sell swap auctions conducted by the central bank on March 26, 2019, which will mature on March 28, 2022.

from Banking & Finance – The Financial Express https://ift.tt/ol6GDB1