Earlier this month it had announced its decision to buy dollars from banks for three years and offer them rupees in return.
The Reserve Bank of India (RBI) accepted the $5 billion it targeted from banks at its currency swap auction to ease liquidity ahead of the financial year-end this month. According to media reports, the central bank received 240 bids worth $16.31 billion. The cutoff was set at a premium of 776 paise, according to a statement.
“The amount received has been very decent and that shows it has been a successful move,” said Paresh Nayar, head of currency and money markets at FirstRand Ltd. in Mumbai. “This also leads to belief that the RBI might be prompted to come out with more of such liquidity injections in future.”
In what was perceived as an unusual move by the central bank, earlier this month it announced its decision to buy dollars from banks for three years and offer them rupees in return.
The move is being hailed as timely as it will bulk up India’s foreign-exchange reserves while injecting as much as Rs 345.6 billion into the financial system to ease a cash crunch typically seen before the financial year-end.
The announcement had led to concerns among traders that the central bank may scale down its purchases of bonds that have been a key support for the market at a time when concerns about the government’s record $100 billion borrowing plan have cooled demand for debt, the report said.
The RBI has bought 3 trillion rupees of debt this financial year.
The success of India's the swap auction might spur a repeat, say some experts.