The Reserve Bank of India (RBI) has announced that it will do a 2-year sell-buy swap for USD 5 billion. This is a smart move that will provide dollars to prevent too much depreciation and also absorb the excess rupees in the system.
Therefore, what they are going to do is to sell USD 5 billion to banks, banks will have to buy it for them on behalf of some importers and sell it back to them in 2024.
So immediately, what is the impact? Currently, the dollar-rupee is under pressure because of crude oil, geopolitics. So at that moment, while supplying dollars, one will be preventing too much rupee depreciation.
Also, there are excess currencies in the system, rupee in the system, more rupees will come in March, when the LIC IPO happens. So, by selling this USD 5 billion they are absorbing Rs 35,000 crore – that's the present one.
What RBI in 2019, around the same time in April, did a buy-sell. So at that time, there was a lot of dollars coming in. They absorbed USD 5 billion in a three year buy sell swap. At that time they had bought from the banks, they are going to supply those dollars back this March, March 26, if not mistaken. So again those USD 5 billion come into the system.
Watch the accompanying video of CNBC-TV18’s Latha Venkatesh to know why this is a masterstroke by RBI.