In a bid to ease liquidity ahead of elections, the Reserve Bank of India (RBI) has bought $5 billion through long-term forex swap auction. The Central Bank has successfully concluded the forex swap auction, buying the targeted $5 billion as part of the long term dollar/rupee swap with a three-year tenor. In turn, Rs 34,561 crore was infused into the Indian banking system.
The RBI has received $16.31 billion in bids for the auction for which the cut-off was set at 776 paise. It has accepted $5.02 billion of dollars tendered. This formed part of RBI's announcement earlier this month that it would buy dollars from banks for three years and offer them rupees in return. The swap will bulk up India's foreign exchange reserves while injecting liquidity into the financial system to ease a cash crunch typically seen before the beginning of a financial year.
It is meant to give RBI greater flexibility in managing banking system cash while helping soak up any potential large dollar inflows, such as from the Rs 42,000 crore purchase of Essar Steel by ArcelorMittal which could make the rupee rise sharply. The central bank has bought Rs 3 lakh crore of bonds this fiscal to support the market at a time when a record $100 billion borrowing plan of the government had cooled demand for debt.
