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RBI's swap arrangement a 'sound move': Subhash Chandra Garg

Welcoming the Central Bank's rupee-dollar swap auction, the Finance Ministry has said that liquidity situation of the economy is comfortable and it will be boosted further by Rs 35,000 crore through the rupee-dollar swap window.

Department of Economic Affairs Secretary Subhash Chandra Garg has said that liquidity situation is comfortable now. He said the Reserve Bank of India's (RBI) swap arrangement is a 'sound move'. In order to meet the durable liquidity needs of the system, the RBI has decided to inject long-term liquidity worth $5 billion into the system through foreign exchange swap arrangement with banks for three years. The swap will be in the nature of a simple buy/sell foreign exchange swap from the RBI side.

Under this swap, the central bank wants to buy dollars (around $5 billion, or Rs 35,000 crore) from banks and return these dollars at the end of three years (in 2022) for a 'forward' premium. This premium would be fixed through an auction on March 26. This typically means the RBI will be buying dollars from banks and selling 'forward dollars' for a premium.

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