The RBI’s latest step on the rupee-dollar swap mechanism will unleash Rs 35,000 crore liquidity in the system, while the credit situation is comfortable, a senior official source said on Monday.
“The liquidity situation is comfortable, the dollar-rupee swap will add over Rs 35,000 crore liquidity into the system and the central bank is monitoring the position of easy credit in the market circulations”, the source said.
The first ever swap auction by RBI will start on Tuesday.
Under the new swap arrangement, the RBI plans to buy dollars from banks instead of bonds, but will return these dollars at the end of three years for a forward premium. This premium would be determined through an auction on March 26.
Currency dealers are waiting to see if this auction is conducted successfully, whereby this could become an effective way of managing market liquidity.
Last week, RBI Governor Shaktikanta Das had made an unexpected change to the central bank’s traditional management of long-term liquidity in the banking system of buying and selling government bonds, by announcing a three-year dollar-rupee swap.
The RBI will buy $5 billion from banks for its reserves by giving them rupees, and reverse the trade in 2022. This pre-emptive move would prevent the currency’s appreciation, say a section of experts.
The currency, sovereign-debt and credit markets are in the waiting mode to see the result of this new swap auction.
The move is largely being seen as one of RBI buying dollars to create domestic liquidity.
The RBI purchases in 2018-19 have topped $42 billion under Open Market Operations. The central bank aims to pump in $5 billion through this swap programme instead of purchasing bonds from banks.