Key Takeaways
- The Reserve Bank of India intervened in the currency market on Wednesday to support the rupee.
- The central bank conducted near-maturity dollar/rupee sell-buy swaps to absorb surplus rupee liquidity.
- These swaps are expected to mature in September and October, affecting forward premiums.
The Reserve Bank of India (RBI) intervened in the currency market on Wednesday, stepping in to support the Indian rupee, which had come under pressure from rising oil prices and dollar outflows, according to traders.
Following the intervention, the rupee recovered to 95.07 per dollar, recovering from a session low of 95.2250, as reported by traders.
In a separate development, the RBI is also conducting near-maturity dollar/rupee sell-buy swaps, as part of its efforts to manage liquidity stemming from overseas deposits raised by lenders, according to seven bankers.
The central bank is conducting these swaps with a maturity in September, with four of the bankers and two foreign exchange (FX) brokers stating that it was also likely to be done for October maturity as well.
As a result, forward premiums for September and October rose by about 2.5 paisa and 4 paisa, respectively, according to traders.
The bankers, traders, and brokers requested anonymity as they are not authorized to speak to the media.
The RBI’s move on Wednesday comes after its 30-day variable-rate reverse repo (VRRR) operation drew a weak response earlier this week.
The banking system is currently saturated with rupee liquidity following a glut of funds from overseas deposits, creating potential rupee overhang.
Three other bankers estimated that the central bank had conducted swaps worth at least about $1 billion across the two maturities.
Indian lenders had proposed using FX sell-buy swaps for liquidity management at a recent meeting with the RBI.
