RBI's $10 Billion Forex Swap Set for Smooth Sailing on Robust Corporate Demand
Overview
The Reserve Bank of India's $10 billion foreign exchange swap operation is projected to succeed due to significant arbitrage opportunities and anticipated strong corporate participation. Bankers expect bids to exceed $15 billion, drawing offshore players with attractive onshore-offshore rate spreads. This move aims to inject rupee liquidity and manage currency volatility.
RBI Injects Liquidity via Forex Swap
The Reserve Bank of India's $10 billion foreign exchange swap is poised for a successful execution, fueled by attractive arbitrage between onshore and offshore markets and an expected surge in corporate engagement. Bankers are optimistic that the operation will draw substantial bids, reinforcing the central bank's efforts to manage liquidity and currency stability.
Market Expectations and Corporate Interest
Bids for the swap, where the RBI buys dollars and injects rupees, are due Tuesday, with results expected the same day. The operation involves injecting $10 billion in rupee liquidity, a measure announced last month that already helped curb upward pressure on dollar-rupee forward premiums. Treasury officials foresee bids surpassing $15 billion, citing a notable arbitrage spread of approximately 25-30 basis points between three-year offshore and onshore rates.
Previous Auction Learnings
While a smaller $5 billion swap in December saw limited corporate participation, market participants anticipate greater involvement this time. The extended window between the auction announcement and settlement is seen as a key factor. While large corporates may not be actively bidding, a notable increase in participation from mid-sized firms is expected. Disagreements persist among traders regarding the final cut-off rate, with some anticipating it to be significantly below prevailing market levels, mirroring the previous auction's outcome, while others foresee a result closer to current rates.
