Advertisement
The Gulf conflict has disrupted global supply chains, pushed...
REITs have changed the way commercial real estate is owned a...
What does it take to preserve a real estate legacy while bui...
What really powers the cloud? Behind every Google search, A...
A lot of what defines a home isn’t visible at handover. I...
The Reserve Bank of India has allowed banks to access its dollar-rupee swap facility more than once a week for large transactions involving Foreign Currency Non-Resident (Bank) deposits, according to currency traders. The change comes shortly before the special deposit scheme closes at the end of August and as banks prepare for potentially higher dollar inflows. The scheme has attracted more than USD 65 billion so far. The RBI’s move is intended to help banks manage surplus dollar liquidity and reduce pressure on overnight and forward currency markets as they handle the inflows.
The Reserve Bank of India has given banks greater flexibility to manage dollar inflows raised through non-resident Indian deposits ahead of the closure of a special deposit scheme.
Three currency traders said the RBI informed banks through a message on its trading system that they could use its dollar-rupee swap facility outside their designated weekly window for Foreign Currency Non-Resident (Bank), or FCNR(B), deposit transactions exceeding USD 100 million.
Banks are currently assigned one day a week to conduct dollar-rupee swaps with the central bank. Transactions below USD 100 million will continue to be restricted to the banks’ designated weekly window, according to the RBI message.
The move comes as the August 31 deadline for the special deposit scheme approaches. The scheme is part of the RBI’s efforts to attract overseas dollar inflows, strengthen the country’s foreign exchange reserves and support confidence in the rupee.
The scheme has attracted more than USD 65 billion so far, while banks have increased their overseas fundraising to provide additional leverage to potential depositors before the facility closes.
One of the traders said the RBI’s decision was aimed at helping banks deal with a possible surge in dollar liquidity. More frequent access to the central bank’s swap facility would allow banks to offload surplus dollars to the RBI instead of holding the funds until their assigned weekly swap day.
The need for such flexibility was visible in the currency market as dollar liquidity increased. The one-day dollar-rupee swap cost rose to as much as 2.5 paisa, compared with around 0.40-0.50 paisa in recent sessions.
Traders said large dollar inflows can leave banks with excess dollar balances that need to be rolled over in the overnight swap market until they can access the RBI’s facility. This increases the overnight cost of converting surplus dollars into rupees and can also put pressure on the broader forward market, raising currency hedging costs.
The one-month annualised implied hedging cost rose by more than 30 basis points at one stage before easing slightly following the RBI’s move.
The RBI had not immediately responded to a request for comment. The traders spoke on condition of anonymity as they were not authorised to speak to the media.
Source Reuters
Advertisement
Facebook
Whatsapp
