Foreign exchange swaps conducted by the Central Bank absorbed rupee liquidity from the banking system, taking excess liquidity down to Rs. 8.16 billion on Thursday, from Rs. 16.88 billion a day earlier and Rs. 46 billion a week earlier.
"Not so long ago the Central Bank used to sell dollars to the system and then inject the rupee shortfall into the system, called sterilised foreign exchange sales, and when interest rates were kept artificially low this fuelled credit growth, put pressure on inflation and subsequently the exchange rate was under pressure as well, but now the Central Bank is behaving differently and we are seeing some good moves by the bank," one dealer said.
A day before, the Central Bank allowed benchmark Treasury bill yields to increase by as much as 10bps.
"Continuing like this, we are unlikely to see inflationary pressures build up, credit expand too fast nor the currency weaken," another dealer said.
The rupee fell against the US dollar yesterday mainly on seasonal import demand closing at Rs. 126.96/127.00 from an opening position of Rs. 126.75/78 against the greenback.
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