Home Forex Exchange RBI to conduct six-month forex swap worth $2 billion – Gulf Today

RBI to conduct six-month forex swap worth $2 billion – Gulf Today

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Several emerging market currencies experiencing downside pressures. Reuters

In a bid to ease the US dollar requirements of open market, the Reserve Bank of India (RBI) decided to conduct a six-month swaps worth $2 billion to provide liquidity to the foreign exchange market (forex).

Accordingly, the Reserve Bank’s Governor Shaktikanta Das in Mumbai said that the swaps will be conducted through the auction route in multiple tranches.

In financial parlance, the swap action by the Reserve Bank will ease the US dollar requirements of the foreign exchange market at multiple price rates to stem the high volatility in INR-US exchange rates.

As per plan, the auctions will be multiple price based with successful bids being accepted at respective quoted premiums.

According to the Reserve Bank on India (RBI), financial markets worldwide are facing intense selling pressures on extreme risk aversion due to the spread of COVID-19 infections, compounded by the slump in international crude prices and a decline in bond yields in advanced economies.

“Flight to safety has led to spike in volatility across all asset classes, with several emerging market currencies experiencing downside pressures,” the RBI said in a statement.

“Mismatches in US dollar liquidity have become accentuated across the world,” if further said. In addition, the Reserve Bank said that it is closely and continuously monitoring the rapidly evolving global situation and spill overs.

The RBI statement said, “It stands ready to take all necessary measures to ensure that the effects of the COVID-19 pandemic on the Indian economy are mitigated, and financial markets and institutions in India continue to function normally.”

“The level of forex reserves at $487.24 billion as on March 6, 2020 remains comfortable to meet any exigency,” it added.

In a bid to ease the liquidity strain that might be caused due to the coronavirus outbreak and its subsequent economic fallout, the Reserve Bank of India on Monday decided to conduct more long term repo operations (LTROs).

The Reserve Bank has already conducted LTROs on February 17 and 24 and March 1, and 9, 2020. The LTROs are conducted for a three-year tenor period.

Addressing media persons here, RBI Governor Shaktikanta Das said that that fresh LTROs will be conducted via which Rs 1 lakh crore will be injected through multiple tranches. In financial parlance, an LTRO is a loan scheme for banks which come at the current repo rate from the RBI.

This type of operation are generally conducted to relieve the banks from some of their debt repayment obligations towards bondholders. Thus, it boosts cash flows emanating from the banking sector.

It was highly speculated that the RBI will ease key lending rate soon after with the US FED and BoE cut rates to aide the industry.

However, market watchers said that such a move will have a more durable impact on dealing with the economic fallout of coronavirus.

On the chances of a rate cut, the Governor said that any decision on the same will be taken only by the monetary policy committee (MPC) after assessing the impact of coronavirus on the economy.

Meanwhile the Indian industry body CII has urged the Reserve Bank of India (RBI) to announce an emergency rate cut of at least 50 basis points (bps) before the scheduled bi-monthly meeting of its Monetary Policy Committee (MPC) in April.

In a statement, CII said while the Reserve Bank of India (RBI) has its scheduled monetary policy meeting coming up in April, it could deliver growth supportive measures even earlier.

The industry body’s statement comes as the RBI fell short of announcing a rate cut on Monday and instead declared its decision to conduct dollar-rupee sell buy swaps and more long term repo operations (LTROs) worth Rs 1 lakh crore.

The apex bank in its last MPC meet in February kept the repo rate unchanged at 5.15 per cent in view of the uptick in inflation.

Chandrajit Banerjee, Director General, Confederation of Indian Industry said: “We were buoyed by the bouquet of innovative measures introduced by RBI in its last monetary policy. The need of the hour is to continue with more such innovative steps apart from announcing a rate cut by at least 50 basis points.”

The chamber noted that the outbreak of coronavirus has endangered the expectations of a global recovery in 2020, emerging as the biggest global concern by crippling China and significantly impacting global supply chains.

Global policymakers are trying to support financial markets and the real economy through coordinated policy actions, it said, adding that it is time that the domestic policymakers also join in orchestrating the coordinated policy response.

Agencies

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