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To counterbalance possible domestic liquidity effects of the $2 billion sell-buy swap operation that it will conduct on March 16, 2020, the Reserve Bank of India (RBI) has decided to provide rupee liquidity for seven days aggregating ₹25,000 crore to the financial system today. This is in addition to the already announced provision of 14-day rupee liquidity aggregating ₹3.80 lakh crore.
The rupee liquidity infusion will be via variable rate 'reverse' repo auctions. The RBI said it is closely and continuously monitoring the rapidly evolving global situation and will take all necessary measures to ensure that money, debt and forex markets remain adequately liquid and stable, and continue to function normally.
With the rupee weakening beyond 74 to the dollar level, the Reserve Bank of India (RBI) on Thursday stepped in to arrest further depreciation of the domestic unit, announcing that it will undertake 6-month US Dollar sell/buy swaps to provide liquidity to the foreign exchange market. To begin with, it will offer $2 billion on March 16, 2020.
Simultaneously, the RBI said it is closely and continuously monitoring the rapidly evolving global situation and spillovers arising from the COVID-19 pandemic.
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RBI to conduct sell/buy swap for $2 b to halt rupee’s fall, provide dollar liquidity
The sell/buy swap, whereby a bank will buy US Dollars from the Reserve Bank and simultaneously agree to sell the same amount of US Dollars at the end of the swap period, will be conducted through the auction route in multiple tranches, RBI said in a statement.
The auctions will be multiple price based -- successful bids will be accepted at their respective quoted premiums. The swap comes in the backdrop of mismatches in US dollar liquidity becoming accentuated across the world.
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