Question

why has RBI gone for only buying USD and not for selling it​

Answer 1

Answer:

Reserve Bank of India (RBI) on Thursday announced that it will undertake a six-month US dollar sell/buy swap window to provide liquidity to the foreign exchange market. The first sell/buy swap auction involving $2 billion will be held on Monday and the swaps will be conducted through auctions in several tranches, the central bank announced.

In this exchange, CNBC-TV's Latha Venkatesh talks about what this means for the rupee and financial markets.

Q: What is the dollar-swap window by the RBI all about?

A: RBI will provide $2 billion on March 16 to any bank which wants through a swap. So the RBI will give dollars and the buyer gives rupees and the transaction will be reversed on September 16. So it a 6-month sell-buy swap from RBI

Q: How does this help?

A: It helps those banks that have seen a big outflow of dollars as foreign funds sell their shares, and with the rupees buy dollars to exit the country. Since there is excessive dollar buying by FPIs, RBI is replenishing the market with dollars

Q: Will it be effective if FIIs continue to sell as heavily?

A: The RBI has said "to begin with" $2 billion swap on March 16. It will continue to do these swaps whenever it senses pressure on dollar availability, or so it seems.

Q: What else could the RBI do to keep the rupee stable?

A: Nothing more actually. We are already balanced on the current account (i.e. the deficit was down to 0.2% of GDP for the December quarter). For the current quarter, we may report a current account surplus. So there won't be any panic for RBI to take any action.

Q: There is talk of an out-of-turn rate cut? Will that help calm financial markets?

A: Not sure whether there will be a cut and whether it will calm markets. RBI may be keeping its powder dry considering that rate cuts by other central banks have been greeted by markets falling. A rate cut is for sure on April 3 when MPC meets. Again, about whether it will be earlier, that's very tough to say.

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