Mumbai: The central bank’s timely $5-billion swap auction Tuesday hauled the Indian currency from lifetime lows through injection of dollar liquidity. Stocks, meanwhile, whipsawed for a greater part of the session before a last-hour burst helped the benchmark gauges log their first gains in five days.

“The dedicated swap window hit the market at a crucial time when it was needed,” said Kunal Sodhani, assistant vice president – forex and rates, Shinhan Bank. “Dollar liquidity helped maintain relative stability amid the outflow of overseas funds, while it also helped drain excess rupee liquidity.”

The Reserve Bank of India (RBI) conducted a sell/buy swap auction for $5 billion on Tuesday as part of a rupee liquidity normalisation programme, helping rationalise the plunging forwards premia, or the cost of covering currency risks. It accepted $5.13 billion worth of offers against total bids of $13.56 billion, selling spot dollars at a specified rate, only to buy the same amount back from the forwards.

The rupee, which had breached the 77 mark to a dollar Monday, climbed to 76.72 before closing at 76.92. The local unit turned out to be the best performing Asian currency for the day, Bloomberg data showed.

Stocks, meanwhile, erased early losses to advance after European markets climbed. All major sectoral indices, barring oil and metals, largely gained. Overseas funds sold stock worth ₹8,142.6 crore while local institutional investors bought shares worth ₹6,489.59 crore.

The Sensex climbed 581.34 points, or 1.1%, at 53,424.09 and the Nifty gained 150.30 points, or 0.95%, at 16,013.45. In the past four sessions, the Sensex fell 4.7%, while the Nifty lost 5.5%.

Sun Pharmaceutical Industries, Tata Consultancy Services, NTPC, Wipro, Tech Mahindra, Dr Reddy’s Laboratories, UltraTech Cement and Infosys climbed 2-4%, leading the list of Sensex gainers.

To be sure, the sentiment for risk assets remains fragile after Moscow’s warning that it could switch off gas supplies to Europe.

Rupee may Find a Floor Soon

It also said that an import ban on Russian oil could cause global prices to surge to $300 a barrel.

Overseas shipments help meet over three-fourths of India’s motor-fuel needs.

Tuesday’s gains, meanwhile, helped the rupee shed its ‘worst performer’ tag, among Asian currencies, for the year to date.

“The dollar window sell/buy swap should act as a key shield against the rupee’s rout in the short term as the market appears short of dollar liquidity,” said Gurumurthy R K, head – treasury at Dhanlaxmi Bank. “The central bank’s measures are yielding desired results to stem the rupee’s losses.”

The rupee might find a floor soon enough, although geopolitical risks could prolong the pains.

“A combination of market interventions and swap windows will likely keep the rupee under check even though geopolitical tensions are still looming large, causing investments to shift to dollar-backed assets,” Gurumurthy said.

A bank participating in the sell/buy auction window would return the dollars after two years, the contract period offered by the RBI.

The weighted average of accepted bids Tuesday was 649.71 paise, about 26 paise higher than the levels traded in the secondary market.

“The dedicated window should reduce volatility in the currency market as it has supplied spot dollars in the banking system,” said Ashutosh Khajuria, executive director, Federal Bank. “The forwards premium, too, went up.”

The one-month, three-month and 12-month onshore forwards premium rose three-to-eight basis points Tuesday.

A basis point is 0.01%.

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