The Reserve Bank of India’s dollar short forward positions rose $26.4 billion to $104.16 billion in March– up 34% on month, according to data released on Thursday. This marks the first time RBI’s dollar short forward positions have crossed $100 billion.
The rise in short positions can be attributed to the regulator’s increased FX interventions to the defend rupee amid the West Asia war, according to market participants. In March, the rupee declined 4.24% after the onset of the war.
In the calendar year so far, the currency has depreciated 5.6%.
RBI shifts to forward tools amid dollar intervention
“This was anticipated, as March saw the West Asia crisis led to significant RBI dollar sales to support the rupee. The significant rise in the short forward book shows the RBI using forwards to sterilise interventions. This signals limited capacity to defend the rupee directly, pushing reliance on tools like bond purchases via open market operations (OMO) for sterilisation,” said Guara Sengupta, chief economist, IDFC FIRST Bank.
She added that some measures need to be taken to draw in capital inflows as comfort on forex reserves is low with reducing import cover.
RBI’s short forward book rises to $ 77.6 billion in February
“When the RBI unwinds these positions, they may need to buy dollars to manage it, preventing rupee appreciation. You will not see sustained rupee appreciation even if other currencies start appreciating because they will try to reduce the short forward move at every opportunity that they get,” said Ritesh Bhansali, deputy CEO at Mecklai Financial Services.
RBI tightens curbs as rupee pressure mounts
The RBI’s forward positions have been rising since October due to sustained interventions in the forward market amid significant rupee pressure from the tariff war. This has been exacerbated due to Middle East tensions. Intensified pressure on the rupee led the RBI to come out with curbs on offshore rupee trades and limited the banks’ open position limits to $100 million. Followed by this, the currency has strengthened by almost 2%.
However, the rupee surrendered those gains this week due to rising oil prices. It fell to a record intraday low of 95.33 on Thursday and ended at 94.92.
“They intervened in April as well. Therefore, I expect the short forward book either to rise further or stay at current levels,” said Bhansali.
