New Delhi: The Reserve Bank of India (RBI) will probably conduct at least one more swap of rupees for dollars after the general elections, as part of an effort to support economic growth, said three officials with direct knowledge of the plan.
The central bank also plans to conduct open market operations of up to Rs 50,000 crore over the next two months, one of the officials said, expanding a quantitative easing programme to spur the slowing economy.
These latest moves are expected to increase cash in the financial system and help push interest rates down, potentially helping borrowers where an interest rate cut has not helped.
"We want to make sufficient liquidity available, but we cannot open the floodgates of liquidity. It has to be done in a calibrated and measured way," said one official who declined to be named because of the sensitivity of the matter.
The Reserve Bank of India declined to comment.India’s economic growth slowed to 6.6 per cent in the October-December quarter, the worst in five quarters, and economists see a further slowdown in January-March, largely due to high interest rates and surging oil prices.
Despite cutting its key policy rate by 50 basis points this year to 6 per cent, the RBI has struggled to get banks to reduce lending rates due to tight cash conditions and high deposit rates.
The RBI wants the real interest rate—the delta between the inflation rate and rate people pay to borrow—to ease for borrowers, a separate government official said.
In May, the RBI announced a fresh round of open market operations to purchase a total of Rs 25,000 crore worth of bonds, with the first auction for Rs 12,500 crore held on May 2.
"There could be two to four more open market operations by the RBI in the next two months (June-July) of similar quantum," the second official said. "We are also in discussions for more forex swaps after the elections," he added.
A third official said the RBI would probably review the amount of rupees in circulation in June and determine the liquidity required by the banking system before finalising details of the rupees for dollars swap auction.
The RBI's two $5 billion buy/sell swap auctions in March and April together injected close to Rs 70,000 crore into the banking system.
— Reuters
