meri saheli magazine
meri saheli magazine Published this article page no 29 It also in a limited way helps in keeping the currency rates in check. A dollar–rupee buysell swap injects INR into the banking system while sucking out the dollars and the reverse happens in a sellbuy swap. Why is RBI resorting to it now? Surplus liquidity in the system is pegged at Rs 7.5 lakh crore which needs to be curbed to keep a tab on inflation. Usually the central bank will resort to traditional tools such as increasing the repo rate or increasing the cash reserve ratio (CRR) but this can have a negative implication on the economy. Therefore the RBI used a different toolkit variable rate reverse repo auction (VRRR) last year. Impacts Forex swaps are intended for liquidity management. Therefore their impact on currency is only incidental. The RBI resorting to selling USD in two tranches will keep a check on Rupees volatility and help curb its depreciation to some extent. For the bond market the exercise may have a pronounced impact. Bonds yields are already on an incline. Liquidity intervention through swaps indicates the RBIs plan to use a different toolkit rather than the traditional ones and this leaves room for the central bank to buy bonds when needed. Consequently the strategy will contain bond yields meri saheli magazine buy.

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