RBI announces US dollar sell/buy swap to provide liquidity to foreign exchange market

Observing mismatch in US dollar liquidity across the world, the Reserve Bank today announced a six month US dollar sell/buy swap to provide liquidity to the foreign exchange market. The decision was taken as the financial markets worldwide are facing intense selling pressures on extreme risk aversion due to the spread of COVID-19 infections.

It said that volatility in global markets has been spiked by a slump in international crude prices and a decline in bond yields in advanced economies.

Flight to safety has led to a spike in volatility across all asset classes, with several emerging market currencies experiencing downside pressures.

Mismatches in US dollar liquidity have become accentuated across the world.

In a statement issued from Mumbai today, RBI said, "On a review of current financial market conditions and taking into consideration the requirement of US Dollars in the market, it has been decided to undertake 6-month US Dollar sell/buy swaps to provide liquidity to the foreign exchange market."

It added, "The swaps will be conducted through the auction route in multiple tranches. The auctions will be multiple prices based, i.e., successful bids will be accepted at their respective quoted premiums."

The first swap worth two billion US dollars will be conducted on Monday, March 16, 2020.

Stating that it is closely and continuously monitoring the rapidly evolving global situation and spillovers, RBI assured that it is ready to take all necessary measures to ensure that the effects of COVID-19 pandemic on the Indian economy are mitigated. RBI added that the level of FOREX reserves, which stood at 487.24 billion dollars as of March 6, 2020, remains comfortable to meet any exigency.

All sectoral indices recorded a fall of over five per cent with shares of realty, metal, oil and gas, banking and finance sectors suffering maximum selling.