India's RBI gives banks more flexibility in swapping overseas dollar deposits

According to Business Recorder, the Reserve Bank of India has let banks swap dollars with it on days beyond their assigned weekly slot. Three currency traders, who asked not to be named, said the window applies to FCNR (B) dollars raised from non-resident Indians. Only deals above $100 million qualify for the extra access, while smaller swaps must still wait for the single weekday allotted to each bank.

Only days separate the change from the August 31 closing date of the special deposit scheme, which is central to the RBI's wider push to attract overseas dollars. So far the scheme has attracted more than $65 billion, while lenders have scrambled to obtain offshore money that gives prospective depositors extra leverage before it closes. A rush of surplus dollars pushed the one-day dollar/rupee swap price to 2.5 paisa on Thursday, far above the 0.40 to 0.50 paisa range of recent sessions.

Surplus dollars sitting with lenders have to be carried overnight in the swap market until the designated day, which lifts the expense of converting them into rupees. That strain spread into the forward market, where the one-month hedging cost, measured on an annualised basis, rose more than 30 basis points at its peak before easing slightly following the central bank's message.