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Informist, Tuesday, Jan. 14, 2025

 

--Dealers: RBI likely selling Jun, Dec dollar/rupee forward contracts 

--Dealers: RBI selling fwd dlrs to neutralise liquidity drain from spot sales

--Dealers: RBI's spot dollar sales far exceed forward sales 

 

By Pratiksha

 

NEW DELHI – The Reserve Bank of India is likely to have sold forward dollars for maturity in June and December on Tuesday to neutralise its spot interventions and avoid draining rupee liquidity, dealers said. "We are seeing quite a bit of receiving (by the RBI) in forwards. This may go on if they (the RBI) continue to protect the rupee, like they are doing today (Tuesday)," said a currency dealer at a foreign bank. 

 

The central bank has been selling dollars in the domestic spot market to prevent a sharp depreciation in the Indian unit. On Tuesday, the RBI likely sold dollars around 86.59 a dollar to prevent the Indian currency from hitting a fresh lifetime low, dealers said. The rupee touched its record low of 86.5900 a dollar on Tuesday, previously hit on Monday. 

 

Given that spot dollar sales drain liquidity from the banking system, the RBI conducts buy-sell swaps to replenish liquidity. A buy-sell swap entails buying dollars for immediate delivery and entering into a contract to sell these at a future date, thereby postponing the drain on systemic liquidity. However, some dealers said the RBI's dollar sales in the spot market likely far exceeded its forward dollar sales.

 

Liquidity conditions have tightened sharply in recent weeks. On Monday, the net liquidity injected by the RBI--a proxy for systemic liquidity conditions--rose to INR 2.50 trillion from INR 2.21 trillion on Sunday, as per data from the RBI.

 

Following the central bank's action in the dollar/rupee forwards market, premiums fell across most tenures. The premium on the one-year exact-period dollar/rupee forward contract fell to 2.50% from 2.53% on Monday. 

 

The central bank conducted buy/sell swaps in the dollar/rupee forward market on Friday as well, according to dealers. The RBI likely sold almost $3 billion for delivery in three-month, six-month and one-year forward contracts on Friday, they said. Notably, the RBI remained absent from the dollar/rupee forwards market on Monday, when the Indian currency fell sharply past the 86-a-dollar mark and posted its biggest one-day fall in nearly two years. 

 

The apex bank's actions to boost liquidity come after treasury heads of banks and primary dealers met officials from the Reserve Bank of India on Thursday and sought liquidity-easing measures from the central bank to address the persistent cash crunch in the banking system. Some banks pitched for further reduction in their cash reserve ratio requirement, others suggested bond purchases under open market operations, and long-term dollar-rupee buy/sell swap auctions to ease the strain on liquidity, Informist had reported.  End

 

US$1 = INR 86.59

 

Edited by Akul Nishant Akhoury

 

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