RBI Concludes Second Forex Swap To Infuse Liquidity; Announces Bond Purchases
The RBI has infused Rs 34,874 crore via its second long-term forex swap auction.
The Reserve Bank of India concluded its second long-term forex swap to infuse liquidity into the domestic banking system.
By purchasing $5 billion in foreign exchange for a tenure of three-years, the central bank has infused Rs 34,874 crore, it said in a release on Tuesday.
According to auction details put out by the RBI:
- Bids worth $18.65 billion were received. This was spread across 255 offers.
- The RBI accepted five offers worth $5 billion.
- The cut-off premium was set at 838 paise.
The cut-off premium was higher than the 790 paise forecast by a Bloomberg poll of five forex traders.
The RBI had surprised markets in March by announcing that it will infuse rupee liquidity using long-term forex swaps. Until then, the central bank had mostly relied on bond purchases under its open market operations programme to infuse liquidity. When announcing the swap, the RBI said this would add another liquidity tool to the central bank’s toolkit.
The first swap auction was conducted on March 26, when the RBI received bids worth $16.31 billion. The cut-off premium was set at 776 paise at that auction.
Bond Purchases
Separately, the RBI announced two rounds of bond purchases in May to ease persistent tight liquidity conditions.
The central bank said it would infuse Rs 25,000 crore in May via two auctions under its open market operation programme. The first auction will be conducted on May 2.