RBI Starts Cutting Short Dollar Book After 7 Months

The Reserve Bank of India (RBI) has started winding down its short position in the dollar forward book, after a gap of seven months, on the back of a softening dollar, while infusing funds via open market operations (OMOs) to counter the resulting liquidity drain.

- ANJALI KUMARI

According to RBI data, the net short dollar position in the forward book (up to one year) stood at $64.2 billion at the end of March. Including the swaps over one-year maturity, the book stood at $84.3 billion, from $88.75 billion in February.

Market participants said the RBI was likely allowing the short positions to mature while sterilising the resulting liquidity impact through OMOs. This, they suggested, explained why the central bank continued to conduct OMOs despite surplus liquidity—ensuring consistency with its accommodative stance aimed at maintaining ample liquidity in the banking system.