RBI to inject rupee liquidity through Forex swap

RBI to inject rupee liquidity through Forex swap

The Reserve Bank of India (RBI)has decided to inject rupee liquidity into the system through long-term foreign exchange buy/sell swap, a first-of-its-kind instrument, used for liquidity management.

The RBI would conduct dollar-rupee buy/sell swap auction of $5 billion for a three-year tenor on March 26. The U.S. dollar amount mobilised through this auction would also reflect in RBI’s foreign exchange reserves for the tenor of the swap while also reflecting in RBI’s forward liabilities.

This move of RBI can lower the dependence on open market operations (OMO)which have been a significant amount of the overall borrowing as higher OMOs can distort the rates curve.