Reserve Bank likely conducting dollar-rupee swaps to support currency

:India's central bank was likely conducting dollar-rupee buy/sell swaps in the mid-to-far tenors on Wednesday as part of its steps to support the local currency, which had declined to an all-time low in the previous session, four traders told Reuters. 

The Reserve Bank of India's buy/sell swaps contributed to the decline in dollar-rupee forward premiums, with the 1-year implied yield touching a 4-month low of 1.97 per cent. 

The rupee dropped to 84.7575 on Tuesday, and was last quoted at 84.69 as of 12:05 p.m. IST, little changed on the day. 

The currency has largely remained under pressure over the last two months on the back of heightened foreign portfolio outflows and a wave of dollar strength sparked by the Donald Trump's victory in the US presidential election. 

Dollar sales in the forward market is one of the ways the RBI intervenes to support the local currency. USD/INR buy-sell swaps offer the advantage of not adversely impacting forex reserves and also do not hurt rupee liquidity in the markets. 

India's foreign exchange reserves declined to a 5-month low of $656.58 billion as of Nov. 22. 

The central bank is conducting buy/sell swaps in spot over April, May and November, traders said, pointing out that the RBI has been receiving mid-to-far tenor premiums over the last two trading sessions as well. 

The RBI has also stepped into the onshore forwards market on the back of its ballooning aggregate short position in the non-deliverable forwards market, which traders reckon likely climbed to $65 billion-$70 billion through November. 

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