The second dollar-rupee buy/sell auction also saw healthy demand with the Reserve Bank of India getting 255 bids worth $18.65 billion compared with the notified amount of $5 billion.
Dealers said high cut-off premium indicated banks mostly stayed away but companies and NBFCs saw it as a good opportunity to lower hedging costs compared with the secondary market.
The cut-off premium was 838 paisa compared with 776 paisa the last time. In a statement after the auction, RBI said liquidity injected in the first leg was ₹34,874 crore. The move would help shore up the country’s foreign exchange reserves which are now close to $415 billion.
“Companies that raise funds via the external commercial borrowing route find this route cost effective due to lower hedging cost as compared to the secondary market,” said a dealer.
RBI had added this new toolkit for liquidity management to ease liquidity to reduce its dependence on open market operations. On March 26, RBI had bought $5 billion through a similar swap auction.
Large tendering in today’s auction also helped the rupee strengthen in the last trading hour of the day as it cut losses and ended the day at 69.62 a dollar, 5 paisa higher than its previous close. After market hours, in a surprise move, the RBI announced bond purchases to ease liquidity further. It said it would buy ₹25,000 crore bonds in two rounds in May.
“Based on a review of evolving liquidity conditions and assessment of the durable liquidity needs going forward, RBI has decided to conduct purchase of Government securities under open market operations for an aggregate amount of ₹250 billion in May 2019 through two auctions of ₹125 billion each,” the RBI said in a statement.
The first auction of ₹12,500 crore would be conducted on May 2. According to dealers, liquidity deficit in the market is more than ₹1 lakh crore. While the market was not expecting an OMO announcement soon after the swap auction, the move is likely to lift spirits in the bond market.
