The Reserve Bank of India (RBI) on Friday announced fresh measures to provide forex liquidity through liquidity through forex swaps to Indian public and private sector banks having foreign branches or subsidiaries. This facility for tenors upto three three months will be available on request until further notice, it said. The pricing of swaps will be based on the interest rates in the domestic as well as the overseas markets using the Reserve bank reference rate for the US dollar-Indian rupee exchange rate.
The RBI said that this measure was taken to provide flexibility to Indian banks in managing their short-term funding requirements at their overseas offices in the context of the global developments. In a further concession, the RBI says that if banks need funds to finance the swaps, they can also borrow under the liquidity adjustment facility (LAF) for the corresponding tenor at the prevailing repo rate. It said that it would be prepared to consider any specific relaxation of statutory liquity ratio (SLR) requirements for this purpose.
Central banks across the world have already taken action to ease the liquidity situation through measures such as in-central bank swap lines, collateralised lending and forex swaps in response to the global financial turmoil and its impact on the international money markets. Elsewhere, EU leaders on Friday considered a financial reform to-do list for next week's summit in Washington, with France pushing a deadline for a global deal by late March to prevent a re-peat of the Wall Street excesses that caused havoc in markets worldwide.
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