Banks pull back from forex trades amid RBI caution
In short
Banks have pulled back from some forex trades because they are wary of the RBI. The report says they used extra rupee liquidity from diaspora deposit inflows to buy dollars and put the money into US Treasury bills.
This matters because it shows how banks are trying to earn better returns when US yields are higher. The report does not say how the RBI will respond or how many banks are involved.
What the reporting says
Banks backed off from some forex deals amid concern about the RBI, using rupee liquidity from diaspora deposit inflows to buy dollars and place funds in US Treasury bills. The reported trades were buy-sell swaps, with dollars bought spot and sold forward, then deployed into US government papers as yields rose over the past three months. The immediate impact on broader currency markets is not stated.
Why it matters
Banks are reported to have stepped back from forex deals while using easy rupee liquidity from diaspora deposit inflows to buy dollars and invest in US Treasury bills. The transactions were buy-sell swaps, with dollars purchased spot and sold forward, then placed in US government paper as yields rose over the past three months. The reporting does not state the RBI's specific action or the size of the flows.