The forward premium of dollar/rupee contract has declined due to dollars/rupee purchase-sale swaps made by the Reserve Bank of India (RBI) to insert sustainable cash in the banking system. This has reduced the cost of hedging for Indian companies wishing to take loans from foreign markets.
The Reserve Bank’s purchase and selling swap strategy is encouraging companies to raise funds from abroad. This will increase capital flow and will help in strengthening India’s foreign exchange reserves. The currency reserves are gradually decreasing, as the Reserve Bank is interfering in the money market to prevent rupee fluctuations.
The treasury head of a private bank said, “When the Reserve Bank swaps and sells a purchase and sale, the forward premium falls and the swap costs for Indian companies borrowed from abroad decreases. This reduces the cost of borrowing for companies. This encourages taking loans from abroad.
Dollar-Rupaya 1-year forward premium has come down to 2.13 per cent on Friday, which is much less than this year’s high level 2.71 per cent in early January. He said, ‘With the purchase-sale swap, the Reserve Bank has not only put cash in the system, but it is also encouraging Indian companies to take loans from abroad. This will increase the arrival of capital in the country and increase foreign exchange reserves. These swaps indirectly will help strengthen the store. ‘
So far, the Reserve Bank has swapped a $ 15 billion dollars/rupee purchase sale and has announced to swap a purchase-sale of $ 10 billion.
First Published – March 9, 2025 | 10:26 PM IST