Banking system liquidity surged to a file 9.7 trillion rupees ($102.66 billion) after India drew $127 billion in foreign-currency deposits from non-residents below a particular scheme, with the funds swapped instantly with the Reserve Financial institution of India.
Additionally Learn: Indian banks slash FCNR deposit rates by up to 310 basis points
The RBI has a number of instruments to tighten liquidity, together with foreign exchange swaps, bond gross sales and a rise in cash reserve ratio.
Financial institution executives who met the RBI favoured foreign exchange swaps, mentioned the sources, who requested anonymity as they’re not authorised to talk with the media.
The central financial institution did not reply to a Reuters request for feedback.
“A unanimous suggestion by the members was to conduct extra greenback/rupee promote/purchase swaps, as that may take away rupee liquidity with out having any main impression on different asset lessons,” one of many sources mentioned.In a promote/purchase swap, the central financial institution sells {dollars} to banks and receives rupees within the first leg of the transaction, earlier than reversing the deal within the second leg.
Merchants mentioned the RBI might conduct promote/purchase swaps for as much as a one-year tenor to match the dates of maturing brief {dollars} in its ahead guide, which will successfully carry ahead these maturities.
Additionally Learn: Indian banks raise over $136 bn via RBI forex swap, FCNR(B) deposits dominate inflows
In accordance with the most recent estimates, the RBI has excellent ahead greenback positions of about $45 billion maturing inside one 12 months. Conducting promote/purchase swaps would permit the central financial institution to soak up an analogous quantity of surplus.
Whereas suggesting this route, lenders urged the central financial institution to chorus from tweaking banks’ money reserve ratio, as that will impression financial institution margins, the sources mentioned.
