Mumbai: Recent declines in India's forex stockpile signal significant home-and-away central bank interventions in the past fortnight, estimated by some to be worth about $5-$6 billion in the offshore rupee market, to curb excessive depreciation of the local currency, bank treasury officials told ET.
Market participants point to at least two instances of the Reserve Bank of India's (RBI) likely presence in the offshore non-deliverable forwards (NDF) market, particularly around 9 am, just before the opening of Mumbai trades. In both cases, the rupee opened significantly stronger in Mumbai, compared with its NDF rates. "They (RBI) were allowing two-way movements in the rupee previously, but I think they just want less volatility, since the maximum depreciation of the year has happened in the past two weeks," said Abhilash Koikkara, head, forex and commodities, Nuvama Professional Clients Group.
The rupee traded weaker near 88/$1 in offshore NDF segment on August 5, but likely intervention by the RBI, through dollar sales, enabled the currency to open firmer at 87.85/$1. Koikkara estimates the NDF interventions to be in the range of $5-$6 billion. "We did see intervention in the NDF segment on some occasions between 8:55 am and 9 am when the NDF rate was quite high," Koikkara said.
The smoothening initiative comes amid concerns that further weakness in the currency could stoke imported inflation and weigh on growth prospects. Significant intervention in both on-shore and off-shore segments were nearly absent after Sanjay Malhotra took over as the RBI governor in December 2024. But sharp volatility in the currency in the past fortnight, with the rupee within touching distance of its all-time low, likely prompted the central bank to intervene and smoothen excess volatility.
The RBI has said in the past that it intervenes in the forex market only to curb volatility and that it does not target a particular level on either side. "In the last fortnight or so, given the sharp depreciation, the RBI seems to have stepped up interventions, onshore and offshore," said a currency dealer at a public sector bank. Dollar sales in the onshore market have also continued, as reflected in the foreign exchange reserves, which saw its sharpest decline in eight months by $9.3 billion to $688 billion as of August 1.
Experts attribute this fall to intervention in the spot market and revaluation losses. A similar trend is expected in reserves this week, along with a likely increase in the short forwards position in August, experts said.
The rupee has weakened by over two rupees since the beginning of this calendar year. The currency was at 85.61/$1 on December 31 and has depreciated by 2.4% over the year. The rupee closed at 87.71/$1 on Tuesday.
Market participants point to at least two instances of the Reserve Bank of India's (RBI) likely presence in the offshore non-deliverable forwards (NDF) market, particularly around 9 am, just before the opening of Mumbai trades. In both cases, the rupee opened significantly stronger in Mumbai, compared with its NDF rates. "They (RBI) were allowing two-way movements in the rupee previously, but I think they just want less volatility, since the maximum depreciation of the year has happened in the past two weeks," said Abhilash Koikkara, head, forex and commodities, Nuvama Professional Clients Group.
The rupee traded weaker near 88/$1 in offshore NDF segment on August 5, but likely intervention by the RBI, through dollar sales, enabled the currency to open firmer at 87.85/$1. Koikkara estimates the NDF interventions to be in the range of $5-$6 billion. "We did see intervention in the NDF segment on some occasions between 8:55 am and 9 am when the NDF rate was quite high," Koikkara said.
The smoothening initiative comes amid concerns that further weakness in the currency could stoke imported inflation and weigh on growth prospects. Significant intervention in both on-shore and off-shore segments were nearly absent after Sanjay Malhotra took over as the RBI governor in December 2024. But sharp volatility in the currency in the past fortnight, with the rupee within touching distance of its all-time low, likely prompted the central bank to intervene and smoothen excess volatility.
The RBI has said in the past that it intervenes in the forex market only to curb volatility and that it does not target a particular level on either side. "In the last fortnight or so, given the sharp depreciation, the RBI seems to have stepped up interventions, onshore and offshore," said a currency dealer at a public sector bank. Dollar sales in the onshore market have also continued, as reflected in the foreign exchange reserves, which saw its sharpest decline in eight months by $9.3 billion to $688 billion as of August 1.
Experts attribute this fall to intervention in the spot market and revaluation losses. A similar trend is expected in reserves this week, along with a likely increase in the short forwards position in August, experts said.
The rupee has weakened by over two rupees since the beginning of this calendar year. The currency was at 85.61/$1 on December 31 and has depreciated by 2.4% over the year. The rupee closed at 87.71/$1 on Tuesday.
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