RBI continues to buy dollars post Mar 11
Even after delivery of $5-bn Swap on Monday, RBI continued buying dollars from the market to ensure rupee doesn’t appreciate beyond 82.64; However, local unit closed at 82.76
image for illustrative purpose
In 2022, RBI had gone for delivery of dollar as a swap of $5 bn for a period of 2 years ending March 11, 2024. RBI most probably took delivery of the $5-bn Swap that was due thus increasing its reserves by $5bn and rupee liquidity by Rs40,000 crore
Buying Spree
- Rs65,000-cr surplus in liquidity
- Tax outflow of Rs2L cr expected
- Market anticipating dollar shortage
- Near-term premiums fell by 30 bps
- RBI buying dollars to avoid rupee appreciation
- Market receiving premiums to ensure no dollar shortage
Mumbai: Defying the speculation of a section of experts that RBI will take delivery of dollars beyond March 11 thus infusing liquidity into market as a swap of $5 billion closed on March 11, the central bank has been buying dollars.
On March 11 alone, RBI started from 82.65 and took the pair higher to 82.75. Not to mention that RBI had gone for delivery of Dollar as a swap of $5 billion for a period of two years in 2022 by doing a sell-buy.
Talking to Bizz Buzz, Anil Kumar Bhansali, head of treasury and executive director, Forex Treasury Advisors, says: “RBI most probably took delivery of the $5-billion Swap that was due March 11. It increased RBI reserves by $5 billion and rupee liquidity by Rs40,000 crore. After completing the swap RBI started buying dollars from the market to ensure dollar rupee does not appreciate beyond 82.64. Later it closed at 82.76.”
The RBI did a sell buy swap in 2022 for two years to ensure dollar liquidity is there in the market as due to the Russia Ukraine war rupee was weakening and inflows had fallen considerably. The swap is maturing on March 11, 2024, and market is speculating that RBI will take delivery of the dollars in the market.
Currently, the liquidity in markets is surplus by Rs65,000 crore due to Government stepped up spending. However, there is going to be a tax outflow of Rs2,00,000 crore by March 15, which will again bring it to deficit. The market is anticipating dollar shortage as RBI is already buying dollars to avoid rupee appreciation. Therefore, market is receiving premiums to ensure there is no dollar shortage and near-term premiums have fallen by 30 bps.
If the RBI rolls over the swap, then there will be no dollar shortage. Rather the rupee deficit will increase. RBI has been buying the dollar through a few of the prominent state-run and private sector banks including SBI, PNB, HDFC among others.
Earlier to it, requesting anonymity, the treasury head of a bank said, “we did have similar swap maturities early this year, which appeared to impact INR or USD liquidity in the system, adversely.”
However, RBI did not rollover and market absorbed the temporary mismatch - partly by flows and partly by RBI smoothening the kinks. So I do not expect or keep a low probability of roll over, he said. If RBI was intervening to mop up FPI flows in the spot market, it may allow such flows to remain in the system to take care of dollar outflows when RBI takes delivery.
Overall, I wouldn’t see a major disruption in liquidity of both USD and INR due to this swap maturity, he said. INR flows can clearly be absorbed using VRRR (overnight or term) and this inflows coincide with tax payouts, so systemically, there may not be disruptions.
