RBI's $5bn swap auction boosts rupee to a 9-mth high of 68.53/dollar

The Indian rupee climbed to a 9-month high of 68.53 against the US dollar after the Reserve Bank of India conducted the first swap auction to release long-term rupee liquidity worth $5 billion into the system.

RBI received an overwhelming response to its dollar swap window on Tuesday, establishing the instrument as an attractive liquidity tool.
Banks are reported to have offered $16.31 billion for the proposed swaps against the RBI offer for up to $5 billion. The RBI accepted $5.02 billion at a cut-off premium of Rs7.76 for three-year dollars — close to the rate at which the market was trading.
“In order to meet the durable liquidity needs of the system, the Reserve Bank has decided to augment its liquidity management toolkit and inject rupee liquidity for longer duration through long-term foreign exchange buy/sell swap in terms of its extant Liquidity Management Framework,” RBI had stated in an earlier release.
“The US 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,” it added.
Under the swap, the RBI received dollars from banks and promised to return these at 76.62 each three years later, irrespective of the exchange rate prevailing at that time.
Heavy dollar flows into the market also helped the swaps. Foreign portfolio investors have brought in more than $5 billion. There are also prospects of successful overseas bidders in insolvency proceedings bringing their dollars to India. In the telecom space too, overseas money is expected to come to pick up stakes in local companies.