RBI's forex forward book climbed to near 4-year high on rupee angst

The Indian central bank's defence of the rupee, necessitated by worries over US trade polices and sluggish domestic growth, pushed the size of its forex forward book to the highest in nearly four years in December. 

The Reserve Bank of India's (RBI) aggregate negative position in FX forwards and futures hit $68 billion in December, per data released on Friday. 

A negative forward book indicates the RBI has sold dollars in the forward market. 

The last time its forward book was this big, whether positive or negative, was in March 2021, according to Reuters' calculations.

The central bank has the biggest negative forward book, in absolute terms, in Asia, per BofA Securities. 

The RBI buys or sells dollars in the FX forward market when it does not want its spot intervention to affect domestic liquidity and/or to maintain headline forex reserves. 

India's headline forex reserves are down $75 billion at nearly $560 billion, adjusted for the forward book. The country's reserves hit a record $629.5 billion in September. 

The RBI's forward book for the October-December quarter rose by nearly $54 billion amid a persistent decline in the rupee. 

The currency, which has been under stress for the last few months, dropped to yet another record low on Monday. It slid 0.7 per cent to 87.28 to the US dollar, in the wake of the dollar's rally after US President Donald Trump slapped tariffs on Canada, Mexico and China. 

The spectre of US tariffs has been wearing down the rupee and other Asian currencies since Trump won the election last November. 

India's sluggish growth, which has pushed foreign investors to take out money from domestic equities, has worsened the rupee's plight. 

The RBI's forward book likely expanded further in January, according to analysts and traders. The central bank regularly sold dollars in the spot market last month, a portion of which it shifted to the forward market via buy/sell dollar-rupee swaps to limit the impact on domestic liquidity. 

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