“Higher OMOs can distort the rates curve,” said a banker. The move would boost RBI’s foreign exchange reserves which were at $401.7 billion for the week ended March 1.
*Open Market Operations are a part of tools in RBI's hands to control liquidity in the economy.
The RBI would conduct dollar-rupee buy/sell swap auction of $5 billion for a three-year tenor on March 26. “In order to meet the durable liquidity needs of the system, the Reserve Bank has decided to augment its liquidity management toolkit and inject rupee liquidity for longer duration through long-term foreign exchange buy/sell swap,” the central bank said in a statement on Wednesday. “The U.S. dollar amount mobilised through this auction would also reflect in RBI’s foreign exchange reserves for the tenor of the swap while also reflecting in RBI’s forward liabilities,” it added.
Forward liabilities: accounts which contain all liability accounts resulting from transactions with a future value or start date as well as their contra accounts.