In an attempt to soak up liquidity from the system, the Reserve Bank of India (RBI) on Tuesday announced a $5 billion rupee-dollar swap — the second one this year. The auction will be multiple-price-based in other words, successful bids will be accepted at their respective quoted premiums.
The market watchers observe that the swap would allow companies to purchase dollars at an affordable cost to be able to service their foreign currency loans. They can also repatriate the dollars for any overseas projects.
At the first swap on March 8, the banking regulator had accepted bids worth $5.135 billion. The auction had seen an overwhelming response with bids of $13.565 billion coming in against $5 billion on offer. The cut-off premium of 656 paise and the weighted average premium of the accepted bids of 649.71 paise translated into an annual premium of a little over 4%.
The excess liquidity in the system is running at close to Rs 8 trillion and the central bank has been looking to mop up some of this. The first swap auction had been planned against the anticipated Initial Public Offering (IPO) of Life Insurance Corporation (LIC). The issue was expected to attract some Rs 60,000-Rs 65,000 crore as subscriptions with a big proportion coming from foreign portfolio investors.
The announcement of the second dollar-rupee swap transaction comes at a time when the rupee remains to post the sharp rise in the price of crude oil. The rupee has weakened over the past month or so, following the surge in crude oil prices in the wake of the Russia-Ukraine crisis.
