RBI may opt to roll over $5-b forex swap
Reserve Bank of India (RBI) could consider rolling over a $5-billion foreign exchange swap set to mature next week as the central bank, which has repeatedly flagged inflationary risks stemming from excess funds with banks, prioritises liquidity management over bolstering forex reserves.
Some investors believe that a current deficit in headline liquidity prints and expected currency leakage during the festive season make a case for the RBI to let the swap mature on October 23, potentially leading to an inflow of around ₹40,000 crore in the banking system.
However, others pointed out that with core liquidity remaining at a large surplus, the RBI is likely to accord more importance to the battle against inflation, given the central bank's worries about excess cash with banks fuelling consumer price pressures.
«After the phasing out of the residual Incremental Cash Reserve Ratio, the core systemic liquidity surplus is currently close to ₹3 trillion, despite headline liquidity oscillating between positive and negative values,» Vivek Kumar, economist, Quanteco Research said.
Core liquidity accounts for the government's cash balances, which cyclically flow in and out of the banking system.
«With the government running down its surplus cash position in the coming months, headline liquidity would get a boost.
