Login With Google
RBI swap auction
Why is it in the news?
- Recently the second dollar-rupee buy/sell auction took place.
- The second swap saw healthy demand with RBI getting 255 bids worth $18.65 billion compared with the notified amount of $5 billion.
More in the news
- Due to the high cut-off premium this time, banks mostly stayed away.
- However, companies and NBFCs saw it as a good opportunity to lower hedging costs compared with the secondary market.
- The cut-off premium was 838 paisa compared with 776 paisa the last time.
- In a statement after the auction, RBI said liquidity injected in the first leg was ₹34,874 crore.
- The move would help shore up the country’s foreign exchange reserves which are now close to $415 billion.
- What is Forex Swap?(1) RBI had decided to buy as much as $5 billion from the banks in a swap deal that could inject nearly 35,000 crores into the system.(2) Banks would be required to park dollar funds with RBI with a deal to buy it back from the RBI after three years.(3) RBI generally use bond purchases for the same all these years. RBI has infused more than Rs 2.36 lakh crore through such purchases so far this fiscal.
- Why Forex Swap?(1) According to bankers, the move is seen to lower the dependence on open market operations which have been a significant amount of the overall borrowing.(2) Open market operations (OMO) refer to the buying and selling of government securities in the open market in order to expand or contract the amount of money in the banking system.(3) Higher OMOs can distort the rates curve.(3) The move would boost RBI’s foreign exchange reserves which were at $401.7 billion for the week ended March 1.
Source
The Hindu.