RBI's net short position in forward swells to $77.5 bn: Monthly bulletin

Rupee's REER drops to 102.37 in February

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The Reserve Bank of India’s (RBI’s) outstanding net short position in the forward book rose further to $77.5 billion by the end of January, against $67.9 billion at the end of December, according to the central bank’s monthly bulletin.

 

In the spot market, the RBI net sold $11.1 billion in January, after a net sale of $15.1 billion in December. The central bank bought $49.1 billion while selling $60.2 billion of foreign currency in January. The rupee depreciated by 1.16 per cent in January.

 

“The short position increased because of the $5 billion swap they conducted, and then some positions must have been taken because the rupee was weakening in January before Trump formally took office on January 20,” said Amit Pabari, managing director at CR Forex.

 

“The short positions must have increased further after the $10 billion swap, but we also saw some inflows in debt, which should have neutered it, and I don’t see it touching $100 billion,” he added.

 

Of the $77 billion net short dollar position, $20.95 billion was in one-month contracts, $25.97 billion in 1-3 month tenures (with a portion set to mature in March), and the remaining $30.60 billion spread across 6-month and 1-year tenures.

 

A year ago, at the end of January 2024, the RBI's net outstanding forward purchase stood at $9.974 billion.

 

“There were outflows from equities in January, especially in the first half, which led to intervention by the RBI,” said a dealer at a state-owned bank.

 

Meanwhile, the Real Effective Exchange Rate (REER) of the Indian rupee continues to moderate, falling to 102.37 in February, against 104.84 in January. The REER increased from 103.66 in January 2024 to 108.14 in November 2024, before moderating to 107.20 in December 2024.

 

The rupee depreciated by 2.4 per cent (month-on-month) in terms of the 40-currency REER in February, due to the depreciation of the rupee in nominal effective terms and the narrowing of India’s inflation differential with its major trading partners, the bulletin said.

 

“As of March 17, the US dollar has given up all of its gains since mid-November 2024, weighed by US trade policy and growth uncertainties,” the bulletin said.

 

However, the RBI was a net buyer of dollars in the first half of the current financial year (April-September), purchasing $8.52 billion worth of US dollars during the period.

 

The rupee appreciated by 0.15 per cent against the US dollar on Wednesday, as the dollar index continues to soften on growth concerns, said dealers.

 

The rupee settled at 86.44 per dollar, against the previous close of 86.57 per dollar.

 

In the current financial year up to November, the central bank net sold $36 billion.

 

The central bank had net bought $1.9 billion in January 2024. In the previous financial year, the RBI net bought $41.27 billion.