RBI ramps up dollar sales in forward market in Q3

The Reserve Bank of India (RBI) aggressively sold dollars in the forward market in the December quarter as compared to the spot market, in an effort to support rupee liquidity in the system.

- Gopika Gopakumar & Ram Sahgal

Sales in the forward market went up by $55 billion during the quarter, with $68 billion outstanding net forward sales at the end of December. During the same period, RBI sold $44 billion in the spot market, data from the central bank's February Bulletin showed. The biggest sales were in October when RBI sold $34 billion in the forward market, and $9 billion in the spot market.

"RBI intervention data suggests a possible shift in strategy from spot market interventions towards forward contracts. This approach may aim to minimize the impact on rupee liquidity while keeping currency volatility in check," said Anindya Banerjee, head of currency and commodity research, Kotak Securities.

RBI parked dollars for forward maturities beyond three months and up to one year in December, bulletin data showed. RBI parked $9.8 billion in this maturity basket as on 31 December. Typically, RBI parks dollars in the one to three month bucket.

"Till late last year, the bulk of the short forward position by the RBI was in the offshore non-deliverable forwards market. But over the last few months there has been a shift to onshore forex swaps market with a view to sterilizing this intervention to support liquidity. On 31 January, RBI did $5 billion forex swaps in the onshore forward market," a forex dealer said on the condition of anonymity.