Banks, dealers want RBI to act on the liquidity front
Banks and primary dealers are urging the Reserve Bank of India (RBI) to inject liquidity into the market through foreign exchange swaps or open market operations (OMOs) during its upcoming policy meeting on February 7, as system liquidity has logged a deficit since mid-December.
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With short-term borrowing costs at three-year highs and rupee forward premiums near two-year peaks, market participants expect the RBI will act to ease the current liquidity crunch. Higher forward premiums hurt importers.
One-month forward premiums, at 2.15% at the start of December, surged to 3.82% by December 31. They stood at 3.80% as of January 8.
The three-day monetary policy meeting will take place after the union budget is announced and would follow changes in US administration, giving the central bank a clearer picture of the macroeconomic landscape.
«The measures, if implemented, will have a dual impact of keeping forward rates low while managing system liquidity,» said Ashhish Vaidya, head of treasury at DBS Bank. «The market is anticipating some sort of signal in the upcoming policy because by that time there will be clearer indication on the policies by the US government,» he said.
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