RBI likely to infuse liquidity into market
Apex bank may take delivery of US dollar; Till last week, there was a liquid deficit of Rs2 lakh cr
image for illustrative purpose
A new sell-buy swap could help resurrecting the premiums to some extent. The recent spending by the Centre after maintaining months of cash balances has brought down the deficit to lowest in last three months
Mumbai: Most market participants are expecting that the Reserve Bank of India (RBI) will take delivery of the US dollar, thus infusing liquidity into the market. This would serve dual purpose. A swap of $5 billion is getting due on March 11, which RBI had done for a period of two years in 2022 by doing a sell-buy.
First, the reserves would go up by $5 billion. Secondly, rupee liquidity would go up which till last week was in a deficit of Rs 2 lakh crore. However, recent spending by the central after maintaining months of cash balances has brought down the deficit to lowest in last three months. The variable rate repos and probable buying of US dollar by RBI has also contributed to easing liquidity conditions. Also the dollar liquidity which till December was tight has now become aflush.
Under the above circumstances, will RBI take delivery of the $ maturing on 11th is circumspect. RBI could also roll over the swap as its current stance in last monetary policy is still withdrawal of accommodation and therefore, RBI may not like to bring the liquidity in surplus.
Talking to Bizz Buzz, Anil Kumar Bhansali, Head of Treasury and Executive Director, Forex Treasury Advisors, says, “It’s a wait and watch situation currently as March is a month of inflows and FPIs have already infused net Rs32,145 crore or $3.9 billion in the current calendar year. Also the premiums for near term are languishing at their lowest.”
A new sell-buy swap could help resurrecting the premiums to some extent, he said. 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 roll over 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 added. INR flows can clearly be absorbed using VRRR (overnight or term) and these inflows coincide with tax payouts, so systemically, there may not be disruptions, he said.
