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Chart of the Day: RBI's forex intervention leans heavily on forwards

The RBI has done sell/buy swaps in March and April to elongate the tenure of its forward contracts. The central bank turned a net buyer of dollars in the spot forex market, as per data.

June 17, 2022 / 10:23 AM IST

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The Reserve Bank of India (RBI) was a net buyer in the foreign exchange market in April but trimmed its long-dollar position in the forward segment, the central bank’s bulletin showed.

The RBI was on both sides of the spot market as it sold and bought dollars intermittently. This shows that the central bank has kept a tight watch on the exchange rate understandably due to global volatility.

April perhaps was the last leg of relative calmness with dollar outflows limited to roughly $3 billion after a tumultuous month of March. In this light, the RBI’s buyer status seems temporary and tactical.

According to forex dealers, the central bank has been selling dollars continuously since May to slow down the rupee’s depreciation. After depreciating less than 1 percent during April, the currency has slipped 2 percent since then.


More importantly, the RBI’s forex intervention is leaning heavily towards forward contracts. Note that in March and April, the central bank did a sell/buy swap with banks wherein it sells dollars and simultaneously agrees to buy them back at a future date through a forward contract.

This was done to roll over forward contracts maturing immediately by elongating their tenure. With a large forward book, the central bank may need to continue with its sell/buy swaps to smoothen out the effect of its forward contracts on the exchange rate.

As the RBI details its interventions with a lag of two months, data in the coming months would show the extent of swaps or outright dollar sales done by the RBI.
Moneycontrol News
first published: Jun 17, 2022 10:07 am
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