“The amount received has been very decent and that shows it has been a successful move,” said Paresh Nayar, head of currency and money markets at FirstRand Ltd. in Mumbai. “This also leads to belief that the RBI might be prompted to come out with more of such liquidity injections in future.”
In an unusual move, the Reserve Bank of India
earlier this month said it would buy dollars from banks
for three years and offer them rupees in return. The swap will bulk up India’s foreign-exchange reserves while injecting as much as Rs 345.6 billion into the financial system to ease a cash crunch typically seen before the financial year-end.
The announcement also led to concerns among traders that the central bank may scale down its purchases of bonds that have been a key support for the market at a time when concerns about the government’s record $100 billion borrowing plan have cooled demand for debt. The RBI has bought 3 trillion rupees of debt this financial year.
The premium is not too far from market levels and the cutoff isn’t disruptive, said Nayar. “It gives a signal that forward premium will not shoot up in the inter-bank market.”
The annualized 1-year dollar/rupee forward premia dropped one-basis point after the cutoff announcement to 3.64 per cent, according to Bloomberg data.