RBI to repeat $5 billion forex swap after successful auction

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Mumbai: The Reserve Bank of India (RBI) will conduct a $5 billion rupee-dollar swap auction on 23 April after its success with the instrument last month, it said in a statement on Monday. RBI received 240 bids worth $16.31 billion in the rare swap on 26 March. The move to buy dollars and offer banks rupees in return helped inject liquidity into the Indian economy in time for the surge in demand as the fiscal year closed on March 31.

While the forex swap will bulk up India’s forex reserves, there’s concern that using the forex swap may reduce the need for RBI to buy debt from the market. The central bank last bought government bonds from the market on 14 March.

RBI bought ₹3 trillion of bonds last fiscal, supporting the market at a time when concerns about the government’s record $100 billion borrowing plan has cooled demand for debt.

The RBI forex auction will be held between 9:30am to 11am local time, according to the statement on Monday. The instrument has no liability on RBI unlike in 2013, when the authority subsidized banks on the interest rate they offered to mop up more than $30 billion in deposits from non-resident Indians to salvage the rupee.