The Reserve Bank of India (RBI) has opened a six-month dollar sell-buy swap window to pump liquidity in the foreign exchange market — the first move following financial markets in India and across the globe experiencing turbulence over the spread of COVID-19, which could lead to a slowdown in growth.
“On a review of current financial market conditions and taking into consideration the requirement of U.S. dollars in the market, it has been decided to undertake a six-month U.S. dollar sell/buy swaps to provide liquidity to the foreign exchange market,” the RBI said on Thursday.
The central bank will conduct U.S. dollar-rupee sell-buy swaps worth $2 billion on March 16, to begin with, in its effort to fight market volatility.
The swaps would be conducted through the auction route in multiple tranches and the auctions would be multiple price-based, that is, successful bids will be accepted at their respective quoted premiums.
RBI said the 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.
“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,” RBI said.