The Reserve Bank of India (RBI) has announced a dollar-rupee two-year sell-buy swap auction for $5 billion on March 8, which will suck out rupee liquidity from the system. The swap will be in the nature of a simple sell/buy foreign exchange from the RBI side, in which a bank will buy US dollars from the central bank and simultaneously agree to sell the same amount of US dollars at the end of the swap period. "With a view to elongating the maturity profile of its forward book and smoothen the receivables relating to forward assets, it has been decided to undertake sell/buy swap auction of $5 billion on March 8, 2022," the RBI said in a statement. The auction cut-off will be based on the premium amount in paisa terms up to two decimal points.
The US dollar surged to fresh one-year high after the Fed chief's testimony to the US Senate on Wednesday bolstered the expectations of interest rate hikes, though gradually.
Strong month-end demand for the US currency mainly from oil importers along with currency futures expiry related purchases predominantly weighed heavily on the forex market and haunted investor sentiment.
Overall forex market sentiment suffered a sudden reversal of fortune contrary to expectation largely moving in line with local equities, reversing all early strong gains.
The stubbornly high global crude oil prices are opening up a can of worms to heightened inflation risks and likely to disrupt government's fiscal maths along with deteriorating global financial conditions.
The rupee has been under immense pressure due to a host of reasons including soaring crude oil prices, sustained foreign fund outflows and widening current account deficit.
Ongoing trade-war rhetoric between the US and China added some nervousness on the trading front coupled with extremely bullish dollar sentiment overseas.
The ballooning of crude prices has significantly increased the country's oil import bill and it can also lead to a worsening of the current account deficit and fiscal deficit for the domestic economy.
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