RBI unperturbed by $52.4 bn short position in dollar forward book

The central bank's forward book saw a drop from $78 billion in February to $52.4 billion in April, with a majority of positions concentrated in the 3-12 month segment

The Reserve Bank of India is not overly concerned about short dollar positions in the forwards book, said Sanjay Malhotra, Governor, the Reserve Bank of India, at the post-policy press conference on Friday.

 

The central bank’s net short dollar position in the forward book stood at $52.4 billion by the end of April, down from a peak of $78 billion in February, according to the latest data by the RBI. A majority of the central bank’s forward positions — around 72 per cent of the total book — were concentrated in the three-month to one-year segment, amounting to $37.7 billion. In comparison, forward contracts maturing within three months stood at $14.7 billion.

 

‘About the $40 billion short positions, we are not unduly concerned about that. Even if you were to… include the one after one year that is coming in, we are not unduly worried. It's a very, very comfortable level to be in. Yes, if there are opportunities and we can build reserves, that will happen, but that is not something which we will be unduly, be bothered about,’ said Malhotra.

 

Following a five-month streak of rising net short dollar positions in the forwards book of the RBI through February, the central bank trimmed some of its dollar exposure in March and April. The RBI was likely allowing the short positions to mature while sterilising the resulting liquidity impact through Open Market Operations (OMOs). This, it was suggested, explained why the central bank continued to conduct OMOs even in times of surplus liquidity.

 

‘With the RBI’s net short FX forward book outstanding at $72.6 billion (end-April, including $20 billion worth of short FX forwards with ~3Y tenors), we believe active USD purchases are likely to continue in coming months to keep FX reserves unchanged, at a minimum. Based on the RBI’s data, it has another $14.7 billion worth of short FX forwards expiring over the next three months; we estimate $7.4 billion in May, $4.8 billion in June and $2.5 billion in July,’ Nomura said in a note.