Increased participation in NDF market a concern for RBI's forex management

Banks had informed RBI on surge in carry trade at a meeting last week

On Tuesday, the rupee dropped 1.2 per cent against the dollar. Before Tuesday’s trading session, the currency was the best performing Asian currency in 2021 and the only one to appreciate against the US dollar in the region despite rising dollar index and slower foreign portfolio investment.

To understand what happened on Tuesday, one needs to go back to a Reserve Bank of India circular a year back – March 27 to be precise – when banks were allowed to trade in off-shore non-convertible forward (NDF) rupee market.

“The offshore Indian Rupee (INR) derivative market - the Non-Deliverable Forward (NDF) market -