RBI asks some lenders to reduce speculative positions against rupee

The Reserve Bank of India (RBI), in a rare move, instructed some banks to cut long positions on the dollar-rupee pair on Friday, seeking to reduce speculative positions with the currency at a record low, four bankers directly familiar with the development told Reuters.

RBI's financial market regulations department informally communicated the instructions to banks, the bankers said.

The rupee weakened to a record low of 84.5075 per US dollar earlier in the day, pressured by portfolio outflows and a stronger greenback.

While the RBI has previously stopped banks from adding long positions on the dollar-rupee, they have not asked them to cut positions in recent years.

 

This move adds to the RBI's arsenal of forex interventions, which includes regular dollar sales in the spot and non-deliverable forwards markets.

Banks' reducing speculative shorts against the rupee could potentially induce dollar sales in the spot market, which would support the rupee, the bankers said.

The bankers declined to be identified as they are not authorised to speak to the media.

In addition to asking banks to reduce speculative bets, the RBI has also asked them to avoid buying spot dollars to execute arbitrage trades between the local over-the-counter spot market, futures and non-deliverable forwards (NDF) market.

Usually when the rupee is under pressure, the offshore rates are higher than the onshore rate, which can create arbitrage opportunities. The NDF arbitrage increases demand for dollars onshore while providing more liquidity offshore.