RBI's net short dollar position in forwards hits record $136.77 billion

RBI's net short dollar position rose from $103.33 billion at June-end as the central bank remained active in the forward market amid depreciation pressure on the rupee

The Reserve Bank of India’s (RBI’s) outstanding net short dollar position in the forward market surged to record $136.77 billion by July-end from $103.33 billion in June-end, data released by the central bank on Monday showed.

 

Short positions in less than one year rose to $47.66 billion by July-end, against $40.33 billion by June-end. The short positions in longer than one year tenure rose to $91.54 billion from $64.21 billion during the same period.

 

Of the $136 billion net short dollar position, $15.59 billion was in one-month contracts, $7.32 billion in 1-3 month tenures, $24.75 billion position is set to mature between three months and a year, and the remaining $91.54 billion was in more than a year contract. The central bank had $2.43 billion long position in the one-month contract.

 

 

Market participants said the increase in short positions suggest the RBI has been more active in the forward market amid depreciation pressure on the rupee, rather than allowing these positions to mature, adding to pressure on the currency.

 

“They did not let these positions to mature because it would have added to the pressure on the rupee while there is geopolitical tension going on,” said the treasury head at a private bank.

 

The rupee depreciated by 0.76 per cent in July.

 

Further, market participants said that given that a large part of the dollars raised through the FCNR(B) swap facility are borrowed and will have to be returned over the next three to five years, the central bank is likely to limit the use of spot intervention as much as possible.

 

“They are cognizant of the fact that these are borrowed dollars, so they have to pay them back. What they are trying to do, by intervening in the NDF (non-deliverable forward) market and in futures market is to ensure that the spot selling of dollars is as minimal as possible,” said Gaura Sen Gupta, chief economist at IDFC FIRST Bank.

 

The RBI’s intervention is expected to become more cautious once the FCNR(B) swap window closes, as the balance of payments is likely to move closer to neutral, making the rupee more responsive to global factors such as crude oil prices and US Federal Reserve policy.

 

“I expect the intervention behaviour will change once the swap window is over. Once window is over, the forcefulness will reduce a little bit, because in the third quarter (Q3) and Q4, the balance of payments will be closer to neutral. The peak balance of payments surplus is Q2 because of FCNR(B). So, the second half (H2) will become even more cautious while intervening,” Gupta added.