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RBI gets more aggressive on forwards to save rupee


In a move to contain theliquidity impact of its foreign exchange operations, the Reserve Bank of India sold a record $18 billion in the forward markets in June to defend the currency as the rupee turned volatile during the month to touch a new low.

The Reserve Bank sold a net of $3.7 billion in the spot market and $18 billion in the forward market in June according to the latest data released by the Reserve Bank of India.

The June intervention numbers indicate that the central bank emerged a net seller in the spot market for the first time in the current fiscal. But has been more aggressive in the forward and the

to defend the currency as foreign portfolio investors pulled out their investments amid global liquidity tightening and uncertain global outlook due to the Russia-Ukraine war. The rupee fell nearly 4 percent between April and July this year.

” Between April & June 2022, the RBI net sold $ 37 billion across currency forwards and futures markets to manage the rupee depreciation and volatility” said Ananth Narayan is an Associate Professor, SPJIMR and Senior India Analyst, Observatory Group. ” Including spot intervention, RBI has likely sold over $ 45 billion during April to July, to meet the demand from rising goods imports, portfolio outflows, and currency hedging by corporates”.

An indication of the extent of dollar drawdown is also evident in the foreign exchange reserves numbers. It has fallen from $44 billion between April and July this year from $617 billion as of end March to $573 billion as of end July. The domestic currency impact works out to around Rs 1.6 lakh crore erosion. Hence it helps to contain domestic liquidity impact by intervening in the forward markets. ” RBI has deployed both intervention in the spot and forwards Space, which have helped in moderating liquidity surplus which is also consistent with RBI’s monetary policy” said Rahul Bajoria, chief India economist at Barclays Capital.

Though uncertainty over the global economic and liquidity conditions continues, there are some green shoots that could help improve the outlook for the and also rein in dollar sales in any market to some extent. ” With portfolio flows now stabilising, and with commodity prices easing, the prospects for August look much better. However, much depends on the future trajectory of commodity prices and dollar strength globally” Narayan said.


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