The Reserve Bank of India's (RBI) outstanding net short dollar position in the forward market surged to a new record of $239.2 billion at the end of September, from $200.06 billion at the end of August, according to the latest data released by the central bank, Business Standard reported. The September figure extends the earlier development this desk reported when the August book first crossed $200 billion - the short position has now grown by roughly another $39 billion in a month.
Source: Business Standard via IND News Express
Most of the book is long-dated. Net shorts with a maturity of more than one year increased to $199 billion from $176.6 billion, while those in the three-month to one-year tenor stood at $13.22 billion at the end of September, according to the data.
Source: Business Standard via IND News Express
The sharp rise in recent months was driven by a special concessional swap window for banks to mobilise foreign currency non-resident (bank), or FCNR(B), deposits, which was operationalised on June 8. Although the window closed on August 31, banks were allowed to enter into swaps under it until September 11. Banks mobilised $133 billion in FCNR(B) deposits through the window, which was opened to strengthen India's balance of payments and incentivise capital inflows amid pressure on the rupee from surging crude oil prices.
Source: Business Standard via IND News Express
"The RBI's recent slew of foreign exchange measures and tighter market access have steadied the spot market, with the rupee rebounding around 2 per cent from its recent low of 96.85 per dollar," said Madhavi Arora, lead economist at Emkay Global. "This heavy short position also limits the RBI's room to cap severely dislocated and elevated forward premia." The 12-month dollar-rupee forward premium rose by more than 120 basis points in October, to 4.57 per cent on Friday from 3.36 per cent at the end of September, increasing the cost of hedging future dollar payments.
Source: Business Standard via IND News Express
The forward book is now the backdrop to the rupee's week. Reuters reported on Monday that the rupee's surprise flow-driven recovery on Friday may prove harder to sustain: the currency fell to 95.28 per dollar on Friday before reversing course on heavy dollar selling by a large foreign bank, and traders expected it to open largely flat at 94.94-94.98 on Monday. Reuters also noted the RBI's net short forward position had climbed to an all-time high of about $240 billion in September, a jump analysts link to FCNR(B) inflows mobilised by banks and subsequently swapped with the central bank.
Source: Reuters via The Hindu BusinessLine
What happens next: the contracts in the forward book will fall due over the coming months and years, and analysts say a book of this size leaves the RBI limited room to add to it just to ease forward-market pressure - the position buys time for the rupee rather than removing the oil import bill and other pressures behind it, a BizzBuzz analysis of the rupee defence argued.
Source: BizzBuzz (analysis)