By Nimesh Vora
MUMBAI (Reuters) – The Indian rupee fell on Thursday, likely squeezed by demand to hedge future dollar liabilities amid a drop in forward premiums on the back of the central bank’s FX swap announcement.
The rupee was at 87.07 to the U.S. dollar at 10:43 a.m. IST, down from 86.9550 in the previous session. The currency had inched up past 86.90 before dollar buying by importers kicked in, according to traders.
It is “not surprising” that the uptick in the rupee “did not stick”, a currency trader at a bank said.
The drop in forward premiums post the Reserve Bank of India’s (RBI) FX swap, alongside the overall weak outlook for the rupee would have brought in dollar buyers, he said.
The three-year swap dropped nearly 25 basis points on Thursday and the one-year by 16 bps.
Dollar-rupee forward premiums declined after the RBI said last Wednesday it would conduct a buy-sell $10 billion three-year swap to boost rupee liquidity. This is the third FX swap that India’s central bank has announced this year.
Previously, it has conducted a $5 billion six-month swap and a $10 billion three-year swap.
Nomura said that it was a “little surprised” at the size of the current auction considering the three-year swap last week received just $16 billion in bids.
However, external commercial borrowing hedging flows in the cross currency swap market and the non-deliverable swap market are seasonally higher in March, and the RBI absorbing these flows reduces the pay flow in markets, Nomura said.
(Reporting by Nimesh Vora; Editing by Sonia Cheema)
