MUMBAI, – The Indian central bank was likely conducting dollar-rupee buy/sell swaps in the mid-to-far tenors on Wednesday as part of its steps to support the local currency, which had declined to its lifetime low in the previous session, four traders told Reuters.
The Reserve Bank of India’s buy/sell swaps contributed to the decline in dollar-rupee forward premiums, with the 1-year implied yield touching a 4-month low of 1.97%.
The central bank is doing buy/sell swaps in spot over April, May and November, traders said, pointing out that the RBI has been receiving mid-to-far tenor premiums over the last three trading sessions.
The rupee dropped to its lifetime low of 84.7575 on Tuesday and was last quoted at 84.7075 as of 11:40 a.m. IST, slightly weaker on the day.
The local currency’s decline to its all-time low prompted the RBI to sell spot dollars and conduct buy/sell swaps to help the currency in the previous session.
As buy/sell dollar-rupee swaps offset the dollars sold in spot, the RBI’s dual market intervention prevents its spot market activity from impacting liquidity and the swap activity also does not hit headline foreign exchange reserves. (Reporting by Jaspreet Kalra, Nimesh Vora; Editing by Janane Venkatraman)
