The Reserve Bank of India conducted the so-called sell-buy swaps with lenders over the past two weeks, including deals with maturities ranging from one month to about six months, the people said, asking not to be named, discussing private matters.
In such transactions, the RBI sells dollars to banks in exchange for rupees, agreeing to reverse the deal at a later date. By taking rupees from banks, the swaps drain rupee liquidity from the system. Rates on dollar-rupee contracts maturing in three months to six months have climbed this month, reflecting the central bank’s activity, the people said.
They extended their rise on Thursday, with the six-month and one-year rates climbing about 20 basis points to their highest since May.
The RBI’s recent swaps are larger than similar steps that have been publicly announced over the past few years, largely reflecting the scale of the cash surplus that the central bank is currently tackling. Typically, the RBI carries out public swap auctions in tranches of around $3 billion to $5 billion.
A spokesperson for the central bank did not respond to an email seeking comment.
Lenders have been awash with cash after the RBI’s measures to attract foreign capital raked in more than $140 billion, far exceeding official expectations. The inflows pushed surplus banking liquidity to a record 11 trillion rupees ($115 billion) earlier this month, pushing down borrowing costs and worsening inflation risks from high oil prices.“The RBI has been managing the liquidity build-up using bond sales and sell-buy swaps,” said Gaura Sen Gupta, chief economist at IDFC First Bank Ltd. “Without these tools, the surplus would have peaked at 15.5 trillion rupees.”
The central bank may have carried out around $10 billion to $15 billion of sell-buy swaps maturing within the fiscal year ending March 31, she said.